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Sep 2, 2014

Get To Know Your Mortgage: 3 Things You Need To Know About Your Mortgage Refinance

by Tahnya Kristina

Tanya Kristina




Have you ever found yourself in need of cash, but don’t have any on hand? You may not need to look any farther than your home if you need to free up some extra money. After all, your home is usually your most valuable asset so it’s a good idea to use it to your advantage.

What Is A Mortgage Refinance?

A mortgage refinance renegotiates your existing mortgage loan. It breaks the existing contract and renegotiates the conditions of the agreement such as the interest rate, the amortization period, the mortgage term as well as the amount of the mortgage loan.

People often do this because they need money. As time passes (hopefully) the value of a home increases; people can refinance their mortgage to increase the loan amount and free up access to more money – this means that people are getting a lump sum of money in their time of need, but they are also acquiring more debt.

If you are thinking about refinancing your mortgage, the benefit of the mortgage refinance has to be worth the cost of accumulating more debt.

Is It Right For Me?

According to Kerri-Lynn McAllister, Chief Marketing Officer at, there are three primary reasons why people should consider a mortgage refinance which include negotiating a lower mortgage rate when interest rates drop, consolidating debt at a lower interest rate (which also simplifies monthly debt payments) as well as accessing home equity for a variety of reasons such as home renovations or buying a new property.

If someone has a lot of debt such as high interest rates  on credit cards, personal loans and lines of credit, they may want to refinance their mortgage and consolidate the high interest debt onto the lower interest rate mortgage loan. “Refinances have been quite popular the last few years because there was a significant drop in interest rates following the recession and borrowers saw ample opportunity to reduce their monthly carrying costs” says McAllister.

How Much Is The Penalty?

In order for this strategy to be truly beneficial the interest rate costs and associated costs on the large mortgage amount will have to be cheaper than they are on the other high interest credit products. When you refinance a mortgage the contract is broken and if the mortgage term is not up for renewal there may be a penalty involved when refinancing your mortgage. The penalty fee for breaking the existing mortgage contract as well as the notary fees must be taken into consideration when determining if a mortgage refinance is financially beneficial.

If you are thinking about refinancing your mortgage and you want to know how much it will cost in penalty fees to break your existing mortgage visit and use their mortgage penalty calculator, it is an online tool that accurately predicts all costs associated with breaking your mortgage term. “Our calculators actually provide a break-even analysis on refinance costs versus potential savings” confirms McAllister.

Three Myths About Your Mortgage Refinance

  1. You don’t have to change financial institutions. As a financial planner when clients come see me to refinance their mortgage they almost always have an offer from another financial institution in hand. Although it is not necessary to do so, many people visit other banks before they visit their home branch when looking for new credit products from credit cards to mortgages. The reason clients do this is because it gives them negotiating power with their financial institution.                                   Banks don’t like to lose business, so if they know the interest rate they are competing against it’s easier to match the competitor’s rate or offer a lower interest rate to retain the client. It is always interesting to see that banks who have no previous relationship with a client are willing to offer extremely aggressive low interest rates on mortgage loans in order to obtain the new business. At the end of the day banking is just a numbers game – clients tell themselves “I will go with which ever bank gives me the lowest rate.” My advice is to shop around and find the lowest mortgage rate from the bank with the best customer service.
  2. There is no need to go “door to door” for your mortgage. Many people don’t know that financial institutions usually have to pull your credit bureau in order to confirm an interest rate because low interest rates usually depend on your financial worthiness – otherwise known as your personal credit score. Rate shoppers should be aware that multiple credit bureau inquiries can actually lower your credit score and affect your mortgage rate.  It’s always a good idea to shop around for interest rates and make sure you are getting the best deal possible on your mortgage refinance, but before you start making appointments with multiple banks narrow your search down to two choices. Having a first and second option still gives you negotiating power between the two financial institutions and it limits the number of inquiries on your credit bureau. You can shop online for mortgage rates and information by using unbiased comparison tools on Canadian websites such as One stop shopping online in both efficient and convenient because you can do it any time, from anywhere; there is no need to find time to fit in an appointment during bank hours.
  3. You can avoid your mortgage penalty. Or at least you can minimize it, according to McAllister. “(Take) advantage of your pre-payment options, which allow you to put a lump sum against your mortgage and/or increase your monthly payment. Using these pre-payment options, you can decrease your mortgage principal and, thus, your penalty to break your mortgage.”

If you are considering a mortgage refinance, before you sign any new documents make sure you fully understand your options – ask questions and get a second opinion. Compare your current payments with the potential new payments to make sure a mortgage refinance is really the best financial solution for your personal situation. If you have some cash on hand make a mortgage pre-payment before refinancing your mortgage to save on the penalty fess and always think twice about accumulating more debt. Ask yourself – is my mortgage refinance truly in my best interest?

Tahnya Kristina is a certified financial planner and professional financial writer with 14 years of experience. She enjoys helping people pay down their debt, make smart investment choices, learn to stay on budget and achieve financial success. You can contact her on her website or via Twitter @TahnyaKristina.