Mortgage Refinancing

For most people, a mortgage is the most significant expense they will take on during their life, and this kind of debt requires commitment. It is a must that you structure your mortgage in such a way that you can enjoy your lifestyle while saving money and improving your financial standing. Refinancing your mortgage is one strategy you can consider which would require you to break your existing mortgage contract and replace it with a new one with more favourable terms. If you take this step at the right time and it is implemented for the right reasons, you can experience several benefits, including:

Locking In: A Lower Mortgage Rate

This is the main reason why so many homeowners choose to refinance their mortgages. You may experience huge savings on interest costs from locking in a lower rate, and while the amount you save may seem pretty trivial at first, it will add up over time.

In Canada, the most popular type of mortgage is a 5-year fixed-rate mortgage, and a borrower will make regular mortgage payments for five years at the rate assigned by the lender at the start of the mortgage. This rate would remain the same for the duration of your term, but if interest rates were to suddenly plummet two years into your fixed mortgage contract, you would be better off refinancing your mortgage to access a cheaper rate. 

Refinancing your mortgage would make sense in this situation because it would prevent you from paying a very high rate for another few years, and you could take advantage of lower rates when you take this step. Before you break your current mortgage, however, you will first have to look at the numbers to determine if this step is financially feasible. You need to consider any costs and penalties because ending your mortgage before the maturity of your term will come at a cost, and a lender will charge this fee as compensation. 

If the savings significantly exceed the total refinancing costs, breaking your mortgage early would be advantageous to obtain a lower rate. 

Access the Equity in Your Home

Refinancing your mortgage would allow you to gain access to the equity in your home, which you can use towards renovations, purchasing a new car, or paying for your child’s university education. In Canada, you are only allowed to refinance up to 80% of your property’s value, and refinancing will require you to break your mortgage early, which means you will face the fees and penalties of ending a mortgage early. 

Accessing your home’s equity can be great, but you must factor in the costs before you agree to a new mortgage. 

Consolidate Your Debt with Lower Rates

High-interest debt can lead to financial hardship, and if you are in this situation, you can consider consolidating your debt with your mortgage. Not only would this allow you to secure a lower rate for your total debt load, but you can also reduce your monthly payment obligations. When you consolidate debt, you combine all your existing debt into a single loan—which would be a mortgage in this case. This would include credit cards, lines of credit, car loans and personal loans. Lenders will be more inclined to offer you a lower rate because your home backs the mortgage, a tangible asset you will likely appreciate. 

You will have just one monthly or bi-weekly payment to deal with, making it much easier to manage your debt. Merging your mortgage with high-cost loan products can reduce your interest payments significantly, and if you make consistent payments for a while, you can improve your credit score

Switch to a Better Amortization Period

This period refers to the length of time needed to pay your mortgage in full. Amortization periods generally range from 15 to 35 years in Canada, with 25 years being the most common. Shorter amortization periods have higher mortgage payments but lower total interest costs, whereas lengthy amortization periods have smaller payments but higher total interest costs. 

Consider your goals, circumstances and preferences when choosing your amortization period. Refinancing your mortgage can provide you with the flexibility to tailor this aspect to your specific needs. If you are having problems with cash flow, extending your amortization period will help reduce your mortgage payments to provide you with some breathing room, but if you prefer to pay off your mortgage quickly, shortening your amortization period would help you make larger payments to help you reach your goal sooner. 


Do you want to know if refinancing your mortgage makes sense for your situation? Charlene Elliott from Dominion Lending will help you make informed decisions. A mortgage calculator can come in very handy in these situations, as will the right information we can provide.

Contact us today at (780) 838-1449 to discuss mortgage refinancing in more detail!