Refinancing Your Home
While the Government and Banks have provided some programs to help with cash flow through this difficult time (please contact your lender for a 6 month deferral of your mortgage payment if you need it), you may still need some extra funds to make it through. With the uncertainty of when our economy will recover from the devastation of the Coronavirus (COVID-19), you may be wondering if you can use some of the equity in your house to help with your other monthly commitments.
HOW MUCH CAN I GET?
Whether it’s for some new furniture, some house upgrades or to cover some monthly costs, the new mortgage rules allow a maximum amount of up to 80% of the appraised value to be available for a refinance. If you qualify, the rates will not be the advertised rates that you see from major lenders. Typically, the rate for a refinance mortgage is about 0.3 – 0.4% higher than the advertised rates on a 5-year fixed term. You also have the option of getting an extended amortization of 30 years to help offset the higher monthly payments. The longer amortization may also help with having to qualify the payments at 2% over the interest rate you will pay (stress test). However, if you have been laid off due to COVID-19, some lenders may not accept your income at this time. We do have a list of lenders that are still accepting income from clients that are on temporary COVID lay-offs.
WHAT IS THE COST?
If you are refinancing your first mortgage and it is not time to renew yet, there will probably be a penalty. The amount of the penalty will vary so your best option is to call your current lender and ask what the penalty would be to payout the current mortgage. The other possible costs with refinancing a first mortgage is an appraisal (Cost around $350) and legal fees to discharge the current mortgage and register the new mortgage (Cost around $1200).
WHAT IF THE PENALTY IS TOO HIGH?
In rare cases, you may need to consider looking at a private mortgage in a new first mortgage position or getting a private second mortgage. Private mortgages in first position are usually at higher rates (8% – 10% plus fees). Private mortgages in second position are even higher at 12% – 15% interest plus fees.
WHAT IF I AM A SENIOR AND DON’T HAVE ENOUGH INCOME TO QUALIFY?
If you are over 55 years of age and have limited income and owe less than 50% of the value of your home, you may want to consider a CHIP Reverse Mortgage. This option has become the best choice for some clients that have lost their part-time jobs. Please contact me for details regarding your specific situation to make sure it is the best option for you.
While I don’t always recommend a refinance; in specific cases, it may be your best financial option to get through a crisis. Getting good advice from a Mortgage Broker is the best first step to make when you are considering the refinance option.
To discuss your mortgage options or for more information, feel free to make an appointment or apply online at jmacdonald.ca.
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