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How to Know if You’re Ready to refinance your mortgage

Getting Ready to Refinance

Before embarking on the journey of mortgage refinancing, it’s essential to establish your financial goals. Refinancing your mortgage can be a powerful tool to achieve various objectives, including accessing home equity, lowering monthly payments, changing loan terms, obtaining a home equity loan (HELOC), improving your credit score, or securing a private mortgage. Sunlite Mortgage has helped many Canadians refinance their mortgages. We work with our clients to evaluate the outcomes before proceeding with mortgage refinance application.

Reasons to Refinance Your Current Mortgage

1. Equity Take Out: Refinancing your current mortgage allows you to access the equity you’ve built in your home. You can borrow more than your current loan balance through a cash-out refinance and utilize the difference for various purposes. Many homeowners use this option to consolidate high-interest debts, such as credit cards and personal loans. The extra funds can also be invested in home renovations, starting or expanding a business, or covering educational expenses. With mortgage interest rates typically lower than other types of debt, using your home’s equity can be an effective solution for debt management and financial goals.

2. Lower Payment: A lower mortgage payment can provide much-needed flexibility in your budget. One way to do this is by refinancing to a lower interest rate, which reduces the interest portion of your payment and leads to significant savings over the loan’s life. Another option is extending the loan term, spreading the repayments over additional years. 

3. Shorten Your Mortgage Term: Shortening your mortgage term, typically through loans with 15-year terms or less, can lead to more favorable interest rates. With a shorter term, you’ll benefit from lower interest costs over the life of the mortgage. The accelerated amortization schedule allows you to build equity faster and pay off your mortgage sooner, potentially saving significant interest.

Things to Evaluate Before Refinancing

1. Your Credit Score: Understanding your credit score and overall credit health is crucial in exploring your refinancing options. Review your credit report for free using online resources to identify any areas for improvement or to ensure you meet eligibility criteria for desired refinancing terms.

2. The Value of Your Home: Knowing your home’s estimated value, especially if you plan to access equity. Lenders generally cap loans at a certain percentage of the home’s value (often 80%). A professional appraisal can provide an accurate assessment, impacting your refinancing options.

3. Your Current Mortgage Payment: Evaluate how your current mortgage payment fits your monthly budget. Whether you seek a lower payment or are considering a shorter term, understanding your financial comfort zone is vital in choosing the best refinancing path.

4. Your Debt Service Ratios: Calculate your Debt Service Ratios to understand your ability to repay debts. Lenders typically consider two ratios when qualifying borrowers for a mortgage, which is a percentage of your income. Your Gross Debt Ratio (GDS) represents 39% of your income. It is used in calculating your mortgage payments, property taxes, and an estimate for your monthly heat payments and 50% of your condo fee (if applicable). Your Total Debt Service (TDS) represents 44% of your income, which includes your GDS and all other debts (credit cards, LOC, loans, mortgage payments, and taxes of any other property you own). These ratios help assess your financial capacity for mortgage payments and other debts.

You can confidently move forward with the mortgage refinancing process by carefully considering your goals, financial factors, and eligibility. A Sunlite mortgage professional can guide you through the process, ensuring you make informed decisions that align with your financial objectives. Whether you’re looking to access home equity, reduce monthly payments, or achieve mortgage freedom sooner, mortgage refinancing can be a valuable tool for your financial success.