Refinancing means to replace an old mortgage with a new one.

There can be many reasons a homeowner would choose to refinance- to free up cash flow, to pay down other high interest credit cards or loans, to renovate a home or even to take a holiday. One of the best reasons to refinance is to take advantage of a better interest rate and this might make sense even if there is a prepayment penalty.

A refinance is an “uninsurable” mortgage product- meaning there is no default mortgage insurer that insures the mortgage like there would be when purchasing with less than 20% down payment. When you refinance, the maximum amount of new loan is up to 80% of the appraised value of the home depending on the location, and property type.

Lets look at example of a person with a current debt of $200,000 secured to the property (eg. mortgage and/or secured line of credit)  with a property value of $500,000.

Home value = $500,000 is 100% of value
Max loan to refinance= $400,000 is 80% of the value
Equity available = $400,000 – $200,000 (current debt on property)
Leaves $200,000 available equity.

If you are considering refinancing at renewal or before be sure to speak to one of us, we will do the calculations and advise if changing your mortgage makes financial sense.