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24 Jun

Benefits of a refinance, it’s worth evaluating your portfolio


Posted by: Aneta Zimnicki

We are in a very interesting window of time right now.  Interest rates are low.  Have you tested your existing mortgages with a refinance scenario?  If you haven’t explored the possibility of refinance, you may be missing an opportunity to re-position your finances and reap some significant benefits.

I encourage you to not to readily dismiss a refinance, simply because you assume it is not worth your while, without looking at the numbers and options that it may provide for you.   Even when there is a penalty for paying out early, it can often be added into the new mortgage, lower your monthly payment and save you thousands of dollars in interest over the term of the mortgage.

Benefits of refinance:

Gets you out of a costly higher interest mortgage.  It could just be as simple as that.

If you have outstanding consumer debt elsewhere, including credit cards and lines of credit, this is a great way to shift to a much lower interest cost. Plus, a mortgage rate can be fixed, while consumer loan interest rates are more likely to be variable and increase. You will save significantly.

If consolidating some debt, you will reduce the number of monthly payments , making your life much easier.

Paying off that consumer debt will help improve your credit score, if you have had issues.

Especially if consolidating debt, you will be lowering your monthly payment. The beauty is that a well-selected mortgage allows you the flexibility to prepay more anyways, so it is a win-win.

For investors, it is very much about debt ratios (see related blog). The more property you own, the higher your debt load is (in general, because lenders look at rental income very conservatively these days).  If you have other liabilities outside of that (a big one I see often is car payments), it erodes your ratios as well.  It comes down to how much you have to pay in total monthly payments.  Anything you can do to lower your total monthly payments on paper, gives your more options and flexibility with future financing.

Possibility to reset amortization to lower the monthly payments, which helps with your debt ratios.

Access to untapped new equity, especially if your property has gone up in value.  This is dead equity, doing nothing and shutting you out from having more funds for investment properties.  Especially beneficial for those new investors who want to start building a portfolio right now and gain credibility to attract future joint venture partners.

Peace of mind.  You don’t know what rates will be when your mortgage matures (much points to an inevitable increase in rates), you may feel safety in knowing you locked in at low rates.

Mitigate risk of mortgage qualification, especially for real estate investors. You may be in a more difficult position to qualify for a mortgage in the future (for example, job situation changes, going into self -employment, acquisition of a larger portfolio, future unknown mortgage rules that may eliminate more choice to the consumer).  It may make sense to get qualified now, and give you that peace of mind, especially if you know you are planning to enter a situation that will make it harder to qualify or give you less options.

Escape from a lender you are not happy with. Finding a mortgage with better terms and flexibility.

Usually, it is a combination of a number of these benefits that help you determine  to go ahead with refinance.  Refinance evaluation is best done via a mortgage broker (yours truly, of course can help), who has access to and is familiar with a large variety of lender products and who focusses on your entire financial big picture.  This ensures you get the best fit mortgage and mortgage structure, in addition to a great rate.