Regina mortgage broker Kevin Carlson explains mortgage refinancing in Canada. Mortgage refinancing is when a home owner gets a mortgage on their home for more than what is currently owed on it. This gives Canadian home owners access to cash funds from their home equity.
Video Chapters
0:00 Intro
0:34 Renewal
0:55 Switch/Transfer
1:14 Refinance
1:36 Debt consolidation
2:02 Refinance example
2:37 Refinance funds uses
3:12 Refinance payment impact
3:28 Payments & amortization
3:54 Marital separation
4:20 Secured line of credit (HELOC)
5:54 Home improvements
6:22 Thank you and please comment
In Canada, a standard mortgage refinance allows a new mortgage of up to 80% of the current property value. If the refinance is due to a marital breakup then the maximum allowable mortgage increases to 95% of the current home value.
When you already have a mortgage, there are 3 different types of mortgages that home owners typically apply for. When their current mortgage term is about to end, and they just want to get a new term and carry over their current mortgage balance, they have a couple of options. A mortgage “renewal” is when the client just takes whatever term and rate the current lender is offering and stays with that same lender.
If the client is more shrewd than that, then they may want to move their mortgage for a better rate. If their current mortgage lender is not offering as low a rate as what another bank or more likely, their trusted mortgage broker has for them, then a mortgage “switch” or “transfer” is in order.
The 3rd type of mortgage that homeowners apply for, and the topic of this video is called a “refinance.” This is when the client would like to take out a mortgage for more than what is currently owed to access cash funds from their home equity. Mortgage refinancing is sometimes done when the current mortgage is at the end of the term, but not always. Waiting until the end of the term however, will help the client avoid any early discharge penalties with the current mortgage lender.
These extra funds can be used for practically anything. Here is a list of what many home owners choose use the funds for debt consolidation to pay out higher interest debt like credit cards, payout of amounts owing to Revenue Canada, home renovations and improvements, purchase of investments or rental property, startup of a new business or
fund post-secondary education for their children.
Because mortgages are stretched out over so many years, the extra funds added to the mortgage usually do not increase their mortgage payments significantly. In fact, in the case of a debt consolidation, homeowners will save thousands every year over the costs of higher interest debt on credit cards & lines of credit. If the clients need to reduce their payments further, the mortgage amortization can be extended out to a maximum of 30 years. Whenever possible, I try to keep clients on track to pay their mortgage off with their original amortization timeline.
If the mortgage refinance is due to a marital breakup in order to pay out the other spouse, the rules around that are a little different. The maximum new mortgage amount increases significantly to 95% of the homes current value.
Most of the time, my clients know that they will need to use these equity take out funds right away. However sometimes, clients come to me looking for a refinance mortgage, but they only need these extra funds months or even a few years down the road. If their current mortgage is up for renewal or I can get them a better interest rate right now, it’s still good idea to work on the refinance right away. In a situation like this, a standard mortgage may not be a good idea. If they are taking out $50 or $100K in extra funds, they are paying interest on those funds from day one. In a case like this I would recommend a collateral mortgage product that has multiple borrowing components. This way the extra funds can be in a secured line of credit rather than in entire mortgage. There are no interest costs on the line of credit while it’s at a zero balance and they have access to those funds whenever they want. The down side is that the interest rate for the line of credit portion is slightly higher.
Link to video on Mortgages After Separation & Divorce:
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Link to video on Purchase Plus Improvements Mortgages:
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Kevin Carlson - Mortgage Broker - FCAA Lic. 31590
Verico Xeva Mortgage - FCAA Lic. 509752
