By Todd Lewys
In its most basic form, remortgaging entails taking out a new mortgage to pay off your existing home loan.
That said, the reasons for remortgaging can go much deeper, says Winnipeg-based Accredited Mortgage Professional (AMP) Shirl Funk.
“People remortgage, or refinance for various reasons,” she says. “Most often, people do it when their mortgage is up — they simply renew with their bank or with a mortgage broker.”
She adds that in addition to using remortgaging to get a better mortgage rate or consolidate debts, there are more-involved reasons for going that route.
“You can do it to take equity out of your home for renovations, vacations or for debt repayment. There’s also an increasing number of people who do it to perform a spousal buyout when their marriage breaks down, or when a home has gone into foreclosure.”
Whatever the reason for choosing to remortgage, it’s a decision that shouldn’t be made on a whim; this is serious stuff.
That’s because there are some significant pros and cons that come with the decision to remortgage.
Let’s start with the Pros:
• The ability to borrow at a lower rate.
• The option of utilizing your home’s equity for additional cash.
• The opportunity to switch to a mortgage product that better suits your financial situation.
• Flexibility to consolidate debts into a single monthly payment.
• Obtaining a more flexible mortgage.
• Getting a lower long-term rate to protect against higher interest rates.
Now, let’s look at some of the Cons:
• Stretching your debts to a longer time frame can increase overall costs.
• Remortgage fees can counter any of the benefits gained from negotiating a lower rate.
• When your home is used as collateral, it can be repossessed if you can’t keep up payments.
• The remortgaging process can take weeks to complete, so total commitment is required.
The key to making the proper choice lies in getting properly educated about the remortgaging process, says Funk.
“It’s important to go and see a mortgage broker so they can ask you key questions in advance. We want to know what your plans are — where are you now, what are your plans for the future? We’ll also look at your current financial situation.”
The answers provided by clients will then shape the mortgage broker’s advice.
“An example would be where a single person comes to me and asks about remortgaging,” she says. “I often ask if they’re planning to get married. If they are, I’d recommend a choice that wouldn’t tie them down.”
In fact, with mortgage brokers, that education starts much earlier.
“We work hard to educate clients prior to taking out a mortgage, again by asking a lot of questions about a person’s or couple’s life. It’s a longer process, but our clients tend to be happier in the end because they know every step of the process.”
If you’re looking to get pre-approved for a mortgage, or are considering remortgaging, go to a mortgage broker rather than a bank, adds Funk.
“Banks just don’t do a thorough job of educating and qualifying people. We (mortgage brokers) won’t work on an application until we get all the necessary documentation. That’s the only way to make sure people are ready to buy a home or are in the right position to remortgage.”
The bottom line when it comes to considering remortgaging?
First, think about whether this step could serve as a tool to improve your current financial situation.
Second, make an appointment with a mortgage broker to properly determine if remortgaging is in your best interests; they are equipped with the knowledge to get you pointed in the right direction.
Why is getting unbiased, professional advice so important?
Simple: remortgaging is something you should do only when the benefits outweigh the drawbacks. If they don’t, you will likely get burned.