Why PAY more when you could SAVE more with a mortgage refinance?
As Canadian mortgage rates remain at record breaking lows, many homeowners are being tempted by the idea of refinancing their mortgages and locking into a more favourable rate. Many leading industry experts are suggesting that homeowners who are still paying over 3% for their fixed rate mortgage should look into locking in a better rate. Even if the rates being offered are 0.75% lower than your current rate, refinancing to get a better deal could save your thousands over the term of your mortgage! These savings can give you extra security and help you endure the monetary difficulties that could arise from the COVID-19 pandemic while improving your financial standing.
However, it’s worth mentioning that when dealing with large sums of money, even the smallest choices you make can have a considerable financial impact. Here we have compiled 5 easy tips and tricks to help you ensure you are maximizing the savings on your mortgage refinance:
1. Borrowers should always present themselves in the best light possible
The COVID-19 pandemic has caused much economic uncertainty and has made lenders even more cautious about the deals they are accepting. Thus, existing homeowners will need to prove their reliability, whether they are refinancing with the same lender or a different one. Borrowers will be required to show proof of stable employment and income which could be difficult for some Canadians during the pandemic layoffs and lockdowns. If you are currently unemployed, it will be beneficial to collect any evidence you might have to show that you have been receiving a consistent income prior to the lockdowns and will resume to receive a consistent income as businesses continue to reopen.
Homeowners should also ensure their credit score is relatively strong if they want to proceed with refinancing their mortgage. Borrowers with a credit score lower than 600 might have a difficult time qualifying for a refinance at super low rate. However, if you are currently in a high rate private mortgage, even if your credit score is below 600, a knowledgeable mortgage broker can try to help you qualify for a lower rate with an alternative lending institution such as a Trust company, a Credit Union, and more.
Before starting your mortgage refinancing process, it will be helpful to know what your credit score is. If you are worried that your bad credit history could impact your ability to get a better rate, you can easily take the necessary steps to improving your credit score before you begin the mortgage refinancing process.
Although it may be slightly more difficult to qualify for a refinance during the pandemic, borrowers who are looking for a mortgage refinance do not need to worry about the stringent new rules implemented by the Canadian Mortgage and Housing Corporation. The silver lining about these restrictions is that they only apply to new high-ratio mortgages and not refinancing!
2. Borrowers should always read the fine print
Do not be too quick to settle on the first lowest rate that you come across. It’s easy to get excited by an extremely low rate, like HSBC’s 1.99% fixed rate, but the reality is that not every borrower will be able to qualify for the lowest rates available. Furthermore some of those rates can come with extremely strict and limiting restrictions when it comes to the repayment of that mortgage.
It is very important to do some shopping and compare multiple different rates while understanding the agreement each one comes with. Some advertised rates are solely for high-ratio borrowers who require default mortgage insurance. Some might need you to sign for a term length that is too long or too short for you. Some might have extremely high prepayment penalties or other restrictions you are not satisfied with.
The main lesson here is to never assume your new deal will be the same as your last, and always pay attention to the details while searching for a lower rate. An easy way to help you find the best mortgage refinance option is to work with a qualified and experienced mortgage broker who can help you compare rates and ensure you are getting the best deal for your unique situation.
3. Borrowers should be aware of their closing costs
The purpose of refinancing your mortgage is to save yourself money. This is why it is very important to always be aware of what your closing costs will be. The refinancing process comes with some fees so it's very important to make sure you are coming out on top after covering the costs of the transaction. Most mortgages come with a $70 registration fee and will often also carry legal fees that can range from as low as $700 to as high as $1,500 or more depending on the complexity of the deal and the type of lenders you can qualify with. Switching lenders will also most often come with a discharge fee that runs anywhere for $0 to $500, based on the lender and the province you reside in.
However, the biggest cost encountered while refinancing a mortgage can be the prepayment penalty of breaking your term early if you have too many months left on a fixed-rate or closed mortgage. Borrowers with a variable rate mortgage should prepare for a penalty equal to three months of interest. Borrowers with a fixed rate closed mortgage should reach out to their lenders and request a payout statement so that they know how much to budget for any prepayment penalties. Prepayment penalties are heavily influenced by the borrowed amount and the time left in the mortgage term and could end up costing the borrower thousands of dollars. Your Clover Mortgage broker can help you better understand what prepayment penalties you might be facing, along with any other costs associated with refinancing your mortgage.
Once a borrower is aware of the costs associated with their mortgage refinance, they can use a mortgage calculator or speak directly with a mortgage broker to see if a lower rate will save them more in interest over the course of their term.
4. Borrowers should be ready to move fast
The COVID-19 pandemic generates a great deal of instability and uncertainty so there is no guarantee on how long these low rates will remain steady. The sooner you are able to gather the appropriate documentation and speak with a mortgage broker, the sooner you can lock in your amazingly low rate!
Below we have provided you with a list of the necessary documentation your lender will require:
- Have your credit score ready.
- Have a recent mortgage statement from your lender ready.
- Have the right documentation to prove you are still employed (ei current pay stubs, letter of employment, bank statements).
- Have your tax documents and notice of assessment from the last two years ready so you can prove your income.
- Have a proper estimate of your home's current value.
- Have a copy of a recent property tax statement or your Final Property Tax Bill
5. Borrowers should be ready to leave their current lender
Many homeowners grow comfortable in their relationships with their current lender, however statistics show that it is often not beneficial to stay with the same lender forever. Mortgage lenders are aware that homeowners do not often want to go through the trouble of shopping around for the best rates, and some lenders might have a tendency to take advantage of that situation. The Office of the Superintendent of Financial Institutions, a Canadian agency, released statistics that oftentimes lenders tend to present returning customers with rates that are 0.09% higher than other rates being offered. Although this may seem like a small enough number, it adds up during a 5 year term.
For example, on a $400,000 mortgage with a 25 year amortization at 1.90% instead of 1.99%, the borrower could save over $1,500 in interest in 5 years ($1,677).
If you are thinking about switching lenders and locking into a better rate the experienced mortgage brokers at Clover Mortgage are here for you. Our team of knowledgeable mortgage brokers will shop around for the lowest rates available to you and make sure you are getting the best deal available to you. With over 40 lenders, we will not rest until we make sure you are getting the most competitive rate possible for your unique situation. We know how intimidating it can be to make the switch to a new lender and we are there for you every step of the way.
Call or text Clover Mortgage at 416-674-6222 or email us at firstname.lastname@example.org to get started on finding a great new low rate for your mortgage refinance!