Unimor Capital Corporation

Tag: mortgage refinance

  • How to Refinance Your Mortgage

    How to Refinance Your Mortgage

    [vc_row type=”in_container” full_screen_row_position=”middle” scene_position=”center” text_color=”dark” text_align=”left” overlay_strength=”0.3″ shape_divider_position=”bottom” bg_image_animation=”none”][vc_column column_padding=”no-extra-padding” column_padding_position=”all” background_color_opacity=”1″ background_hover_color_opacity=”1″ column_link_target=”_self” column_shadow=”none” column_border_radius=”none” width=”1/1″ tablet_width_inherit=”default” tablet_text_alignment=”default” phone_text_alignment=”default” column_border_width=”none” column_border_style=”solid” bg_image_animation=”none”][vc_column_text]Do you want to refinance your mortgage? There are many factors to consider when deciding whether it’s worth it or not. Let’s go over all the pros and cons of refinancing your mortgage, plus the 4 steps you can take to get it done right.

    What is mortgage refinancing?
    Refinancing your mortgage is when you fully pay off your mortgage by taking out another loan. The aim is to get more favourable terms on your new mortgage, such as lower interest rates, access to your home’s equity, or a different type of mortgage altogether (i.e. fixed rates instead of variable). In most cases, you’ll need to have at least 20% of your mortgage paid off already, and you’ll likely be hit with prepayment penalty charges.

    The Pros of Refinancing Your Mortgage
    So why do people consider refinancing their mortgage? Here are 3 of the main reasons:

    • It could save you money.
      The biggest reason someone may want to refinance their mortgage is the potential to save money over the long term. This usually happens when you can get a lower interest rate on the new mortgage. There’s one major thing to keep in mind when making this calculation though – the prepayment penalty. Paying off your mortgage early will usually incur some hefty charges, so you need to factor those into the total savings in order to make sure you come out on top.
    • Consolidating debt.
      If you have multiple sources of high interest debt, sometimes debt consolidation is an option to help you make the repayment not only easier, but also cheaper in the long run. By refinancing your mortgage with a larger loan than the original, you can use the extra cash to pay off your other debts in full. Then you’ll continue to pay off your mortgage at the lower interest rate, and only to one place.
    • Access the equity in your home.
      The equity in your home is the part of the cost that you’ve paid off already. If you refinance your mortgage or open a Home Equity Line of Credit (HELOC), you can gain access to this equity. If you do this, it basically acts as a low interest secured loan you can use whenever you need it. This could be useful for things like unexpected medical expenses or tuition.

    The Cons of Refinancing Your Mortgage
    But if refinancing your mortgage were a perfect solution, everyone would do it… so what’s the catch?

    • You can be hit with major penalties.
      The extra fees associated with refinancing your mortgage are often the tipping point when it comes to deciding whether or not it’s worth it for you. The major issue is prepayment penalties. Since you need to pay off your previous mortgage to refinance it, you’ll need to pay above the agreed-upon monthly payments that are in your contract. Your lender can charge a penalty when you choose to do this, since it’s essentially taking away interest payments from them.How much your prepayment penalty will cost depends on several factors, including: how much is left on your mortgage – both dollar amount and time, your interest rate, and the method used to calculate your fee. There are two main methods your lender can use to calculate your prepayment penalty. The first is simply charging you 3 months’ interest on what you owe. But they can also use interest rate differential, whichever option is higher.
    • Debt consolidation or accessing equity aren’t always financially healthy decisions.
      While saving money on your mortgage can seem like a financially healthy thing to do, there are some concerns that come up when talking about consolidating your debt or taking out secured loans. While debt consolidation can make it easier to track your loans and save you even more on interest – you have to be absolutely sure you can make the new monthly payments. Taking out a loan to pay off another loan could turn into a vicious cycle instead of addressing the actual problem: debt.And while your home equity can give you some impressively low interest rates on loans, you’re putting your house at risk if you aren’t able to pay back what you borrow.

    How Do You Refinance Your Mortgage?
    So after considering all the pros and cons of refinancing your mortgage, what are the steps you need to take to get started?

    Step 1: Decide if refinancing your mortgage is right for you.
    Learning about refinancing your mortgage is one thing, but it’s important to look at your own situation and figure out if it’ll work for you. A good place to start is with your current mortgage – what are the terms that you agreed to? It may be beneficial to talk to a licensed mortgage broker. They’ll be able to give personalized and professional advice based on your own unique situation.

    Step 2: Shop around for rates.
    Once you’ve decided that you want to move forward with refinancing your mortgage, get an idea of what current mortgage rates are on the market. Offered rates tend to rise and fall with the market, since they’re based on the prime rate in Canada. If you see that the current rates are higher than what you have in your mortgage contract, you may want to wait things out to see if you can get a better deal.

    Step 3: Calculate the cost.
    If you find a better mortgage rate, the next step is to figure out what (if any) prepayment penalty you’ll owe. This is a key part that will determine whether you’re actually going to save any money or not. Compare the total cost over the cost of your mortgage based on your current term and the new term you’re hoping to take on. Remember to include any prepayment penalty. If the penalties outweigh the savings, then you may want to wait until your mortgage is up for renewal to switch lenders or change your terms.

    Step 4: Apply and review the new terms.
    Once you’re ready to finalize everything, speak with your lender (or mortgage broker) and get the new agreement signed. You’ll also need to break the previous contract, which will require paperwork of its own (your new lender will generally take care of it). You’ll be guided through this by your lender or mortgage broker, so don’t be afraid to ask questions and take your time when reviewing the new terms. If everything looks good? Then apply for your new mortgage and start saving!

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  • Ways to Finance a Home Renovation

    Ways to Finance a Home Renovation

    Ways to Finance a Home Renovation

    With the pandemic keeping more of us at home, for more hours of the day, about a fifth of homeowners have their eye on a renovation in the near future. The big question for many is: What’s the best way to pay for it?

    Since the COVID-19 pandemic entered our lives, Canadians have been spending a lot more time at home—and in many cases, it’s inspired both indoor and outdoor renovation projects. New consumer research suggests 23% of Canadians have completed a renovation in the past year and an additional 21% are considering a renovation in the near future. The shift to backyard visits may have made a new deck or freshly landscaped patio more appealing, and in some cases, remote work or virtual school has highlighted the need for a space that functions as a home office. Others are noticing overdue cosmetic updates or are using this time to complete repairs around the house.

    While these home renovations are often necessary, and some are even exciting, most Canadians don’t have the means to pay for these projects outright. 25% of Canadians have saved money during the pandemic as a result of reduced spending on dining out, entertainment, clothing and commuting costs. Families in this fortunate position are using newfound space in their budget to create emergency savings, invest or pay down debt or to help fund a large purchase. Even with these savings in hand, however, Canadians will need to borrow at least part of the cost of their planned reno projects. The big questions for many are: What are the options available? And which is the best for them?

    Can you afford to finance your reno?
    Generally speaking, it’s okay to borrow money for a renovation as long as you can adequately service the debt it creates. This means understanding how the interest rate and repayment structure of your loan will impact your finances. What will the monthly payment be on a $30,000 loan or a $50,000 line of credit, for example, and can you afford to add that to your budget?

    With so many borrowing options available from your bank and other lenders, if you have a steady income, you’ll likely have access to some form of credit. However, that doesn’t necessarily mean you should go for it. If you don’t qualify for a secured loan or line of credit, you probably shouldn’t do the renovation. Getting turned down by a lender reflects your credit history, debt, income, and other factors—including the size and affordability of your project. You may want to consider scaling back the renovation or holding off until you’ve saved up a larger proportion of the cost.

    Home Equity Line of Credit (HELOC)
    A home equity line of credit, commonly referred to as a HELOC, is a revolving line of credit that is secured by the equity in your home. Nearly all banks and credit unions offer this type of lending, and because a HELOC is secured to your home, interest rates are significantly lower when compared to unsecured loans and lines of credit.

    Homeowners can typically borrow up to 80% of the appraised value of their home minus the amount owing on their mortgage. For example, if your house is worth $750,000 and you owe $300,00 on your mortgage, you would be able to borrow up to $300,000 on a HELOC. Interest payments are structured, but otherwise, the homeowner is able to move money in and out of the line as they please. Most major financial institutions offer interest rates based on the lender’s prime rate (for example, prime +1%).

    Once you’re approved, the funds can be used for anything you choose: a renovation, a new car, unexpected expenses. Many homeowners opt to set up a HELOC with their lender just to have credit available immediately if needed. However, this type of credit can be dangerous if you’re prone to overspending or bad at setting boundaries. As you make payments back to the line, that credit becomes available again, allowing you to re-borrow funds. If you are only making the minimum payment each month—usually just the interest owing on the amount you’re currently using—while you continue to draw additional funds from the line of credit, your debt can skyrocket. It’s best to use a HELOC for planned expenses only and avoid using it for discretionary spending or filling gaps in your monthly budget.

    If you’re worried you may overspend on a HELOC, ask your lender to set a limit you’re comfortable with. Just because you get approved for the maximum amount doesn’t mean you have to take it. So, if you only need half of what they’re offering, ask them to meet you there.

    Refinancing your Mortgage
    When you refinance a mortgage, you’re adding to the amount of money you borrowed from a bank or other lender to purchase your home. This new amount is then rolled into balance on your mortgage. This means you won’t have a separate loan or line of credit payment to deal with—it’s all covered by your mortgage payment. Mortgage refinancing is more structured than a HELOC, this is an attractive option for many homeowners and often has the lowest possible interest rate, because it’s a first mortgage that is secured by the equity in your home.

    Refinancing a mortgage is a great option for those with a tendency to spend, as there’s less need for discipline, you get a lump sum loan, to cover the cost of your renovation and the repayment is fixed. You can’t really abuse that money and you can’t get extra.

    If you add to your mortgage principal, you will owe more and, subsequently, you could have a higher monthly payment. However, if you add to the loan while locking into a lower rate, you may actually end up with a lower monthly payment (yes, even if you’ve borrowed more money). For example, if you originally owed $450,000 on your mortgage at 4% interest with an amortization of 25 years, your monthly payment would have been $2,375. If you added a $100,000 loan at the time of your mortgage renewal and locked into a lower rate of 1.8%, you’d owe $100,000 more but have a monthly payment of $2,278—slightly lower than your original monthly mortgage payment.

    Unsecured Personal Loan or Line of Credit
    A personal loan is a lump sum that you’ll repay with interest on a set schedule. A personal line of credit operates like a HELOC, with a limit you will continually regain as you repay the funds borrowed, but at a higher interest rate because it’s not secured to your home. The interest rates on personal loans and personal lines of credit are typically similar.

    While this type of credit may come in handy in an emergency, it isn’t ideal for planned renovation expenses. Not only do these options come with much higher interest rates than secured forms of credit, but you will also likely have access to less money, which limits what you can do.

    However, if you find yourself in a bind, an unsecured personal loan or line of credit with a reputable financial institution can be helpful. If you can pay it off quickly, it’s better than using a credit card. But it’s not inexpensive or ideal for the average person. While the interest rate on a HELOC may be the lender’s prime rate + 1%, interest on a personal loan might be anywhere from 6% to 12% or more, depending on the lender and terms, as well as your personal credit rating and existing debt load. The interest rate on a standard credit card will likely be 19% or higher.

    The bottom line? In an emergency, a personal loan can be a lifesaver, but it isn’t ideal for most homeowners and should not be used for discretionary spending.

    What else should you be thinking about when borrowing funds for a home renovation?
    A renovation can cost a lot of money, but it typically adds value to your home—something to consider if you have plans to move in the near future. If you’re borrowing money on a HELOC or other form of credit to renovate, your home’s value should go up, if you’re selling, this could be a great investment. But if you’re not selling, you still have to pay it back. Real estate value aside, a home renovation can bring a lot of personal satisfaction and improve your quality of life.