A refinance is where you take out a new mortgage on your own property - either by replacing your existing mortgage, or by borrowing more money against your property.You can borrow up to 80% of your home’s appraised value, minus the amount you have left to pay on your mortgage.
There are 2 types of refinance: (1) Cash Out Refinance (2) Rate and Term Refinance
Cash Out Refinance
If you have equity
in your home—meaning there's a difference between the home value and your mortgage balance —you could refinance to a larger mortgage and put cash in your pocket to use for other goals.
You could use a cash-out refinance to pay off other, higher-interest debts. This is called "Debt Consolidation". The idea is to get cash out of your house and paying off some high interest debts such as credit cards, car loans, tax arrears, etc. All your debts will now come under one mortgage, which is more manageable and often at lower rate of borrowing. The benefits of debt consolidation include:
- Clean up your current credit
- Lower monthly payment
- Increase cash flow
- Savings on costs of interest
It's totally worthwhile to consider getting cash out of your home to do some renovations, especially the renovations will increase the value of your home. You can consider finance your home renovation with your credit card and earns the rewards or points first, then proceed with a cash-out refinance to repay the card balance.
The CIBC poll shows that renovation is shifting to the outdoors and Dan Hanson, senior director of secured lending products at CIBC, says that most consumers doing these small-scale renovations will do it from savings, with others choosing to put it on their credit cards. Credit cards can be beneficial if the credit card has a rewards or points program, and many home owners then convert the balance after the renovation is complete, refinancing their mortgage and combining the balances.
Rate and Term Refinance
You can consider replacing your existing mortgage with a different mortgage that better fits your lifestyle.
Take advantage of Lower Rates
The most common reason for refinancing a mortgage is to take advantage of the dropping interest rates, enjoy some interest savings and lower monthly payments. Since there are costs incurred to arrange a refinance, always work with a mortgage professional so that to make sense of the refinance.
Mortgage Free Faster
If you have a big career advancement and would like to be mortgage free
faster. If you started off with a 30-year mortgage, you may want to refinance into one with a shorter
, such as 15 or 20 years. All things equal, a shorter term means higher payments—but if rates have dropped since you bought your home, you may find there isn't that big a difference.