August 26th 2021
How to Find the Best Lender to Refinance a Mortgage
By Arthur Favier
Many Canadian homeowners have taken to refinancing their mortgages lately. In fact, from March 2020 to February 2021, mortgage refinancing quotes rose a total of 389%. Mortgage quotes are counted when "a consumer has used a mortgage quoter to compare rates and has filled in their information to request a formal offer from one of the banks or brokers online or in person." This 2020 boom has led to one of the most significant surges of Canadian mortgage financing ever. Canadians are eager to take advantage of this opportunity; however, many struggle to find the right lender for their mortgage.
Refinancing your mortgage is a big decision, whether you’re trying to secure more money to buy something big or adjusting the terms of your existing mortgage. How can you make sure you have the right lender when you refinance your home? There are some key points to consider when refinancing your mortgage, and by asking yourself these questions, you can find the best mortgage lender for your needs.
Can I even refinance my mortgage?
Before you go online and start researching which lenders offer what interest rates, you should consider if you even can refinance your mortgage. One of the first things to examine is if your loan-to-value ratio is lower than 80%. If it isn’t lower than 80%, you’re not eligible for refinancing.
Lenders typically calculate your loan-to-value ratio by “dividing the balance owed on your mortgage and any other debts you may have secured by your property into the current value of your property.” Your lender may also ask to review your debt payments or monthly income. Documents like a T4 slip, pay stubs, mortgage statement, recent property tax bills, and recent asset statements for your investments will need to be provided to your lender if you ask to refinance.
Is refinancing a good idea?
Now that you know if you’re eligible for refinancing, it's time to ask, “should I even refinance my mortgage”?
Refinancing your mortgage means you’re replacing your existing one, so be sure to check if interest rates have risen or declined since your last mortgage term. If interest rates have risen, it may not be the best time to refinance. However, Canada is currently in a refinancing boom and interest rates are low, so it looks like an ideal time.
Be careful and account for appraisal costs, legal fees, and prepayment charges in your total refinancing cost calculations. These fees can add up and sometimes aren't worth the lower interest rates, so make sure to include them as factors.
Another thing to consider is if you’re going to change the type of mortgage rate you currently have. If you switch from a fixed-rate mortgage to a variable-rate mortgage, you may have to deal with rising interest rates and higher monthly mortgage payments in the near future.
Even with those concerns in mind, it can often benefit a Canadian homeowner to refinance their mortgage. If interest rates are lower, you can reduce the amount of your monthly mortgage payments by refinancing your mortgage. This type of refinancing is often called rate-term refinancing, and even small changes in your interest rate can reduce your monthly payments. And by saving money on your monthly payments, you can access more of your money to help pay off the higher interest debt you might still have.
You can also swap out your current mortgage for a more substantial loan and that difference will be given to you in cash, giving you more disposable income to help with monthly bills. This is called a cash-out refinance, and it requires at least 20% equity in your home.
Speaking of equity…it’s one of the most important things to consider when refinancing your mortgage.
Building equity in your home happens when you make payments to your mortgage. Your home equity is calculated by taking the difference between your property market value and the outstanding balance of your mortgage. Other debts that your property has secured are also added to the total for home equity. You will have to calculate your home equity with your lender or specialist, but you can appraise your home and retrieve up to 80% of your home's value in legal tender if needed.
You can also open a home equity line of credit (HELOC), which acts as a revolving source of funds that you can access whenever you'd like. HELOCs rarely have closing costs and feature variable interest rates, though you can still have fixed rates on HELOCs. These act as credit lines that you can access in various ways, including through cheques, online transfers, or simply a credit card connected to that account.
With so many different refinancing methods for your mortgage, it is no wonder so many Canadians struggle to benefit from refinancing. It can be confusing and counterintuitive to research all these options on your own. So how can you ensure you have found the right lender without being overwhelmed?
Finding the right lender
After considering all of these options, you can easily find the best lender to refinance your mortgage. The solution is to compile all the information above and bring it to a housing market specialist who can look at your portfolio and suggest the best refinancing options for you.
Properly offers one-on-one meetings with housing market specialists who can address your refinancing needs so that you can find the perfect lender. Calculating fees and home equity can be a complex process, so having an expert help you compare interest rates is something all Canadians should do when refinancing their mortgage.
You can always Google to see what companies offer specific interest rates, but your financial portfolio is often neglected with this method and can lead to different interest rates than the ones you’ve seen online. The best practice is to schedule a meeting with a housing market specialist and be prepared to talk about refinancing your mortgage. Using services like Properly can make a world of difference and ensure that you can feel confident about finding the best lender for your family's financial needs when refinancing your mortgage.