If you own a home, chances are it has gone up in value over the past few years. By refinancing, you may be able to use this value to receive money back.
You may have collected equity for your home over years. You may be able to recover the difference between the current value of your house and the original amount of your mortgage. You can then use the money you recover to finance your goals.
What is Refinancing?
Refinancing your home involves paying off your existing mortgage and replacing it with a new mortgage (for up to 80% of your farm’s appraised value).
This is a move that can allow you to access the equity you have accumulated on your home and withdraw it in cash.
When you refinance a property, you replace your current mortgage with a new one, and sometimes with better terms. In most situations, the best time to refinance is at the end of the term, which saves you from paying a penalty on top of other fees, but things don’t always work out that way.
Here are three situations suggested by Agriculture Mortgages where you might consider refinancing:
1. Change the terms of the loan
If interest rates are falling, but yours is much higher, you could refinance to lower your rate and your payments. Refinancing at a lower rate will save you money in the long run, but make sure the rate difference justifies the refinancing costs.
If interest rates go up and yours is variable, you can refinance with a fixed rate before they get too high. Depending on the terms of your mortgage and whether or not you decide to stay with the same lender, you might even do this without refinancing.
You can also refinance to extend or decrease the term of your loan, depending on your financial terms.
2. Finance is a big expense
Over the years, you have accumulated equity in your home. If you have paid off enough money on your loan, you can refinance your home to get money for big expenses.
3. Consolidate debts
If you’re trying to pay off multiple credit cards and other types of debt with higher interest rates, it might be a good idea to refinance and consolidate your debt into one payment.
A mortgage has a much lower interest rate than a credit card or other unsecured debt, which could potentially save you thousands of dollars in interest charges.
Once you’ve decided to refinance, the most important thing is to be prepared for additional costs like prepayment penalties, discharge fees, and the costs of closing your new mortgage.
If you’re doing it to free up money, one way to save money is on the refinance itself. Be sure to work with a mortgage broker or lender who understands your needs and helps you find the right solution for you.
How to Assess How Much Equity You Have in Your Home
Not sure you’ve built up the necessary equity to justify a refinance? Talk to a local real estate agent. They can perform a comparable market analysis and appraise your home for you.
If he knows the area well (which he should), he can give you a good idea of how much you could sell your house for today.
If you’re seriously considering refinancing your home, it’s best to get a professional appraisal from the lender you’re considering refinancing with. A Mortgage Advisor can help you get this valuation and tell you how much cash you can get back after refinancing.
Refinance Your Home Mortgage for Your Renovations
Refinancing your mortgage can be an attractive option for obtaining some money for renovations, provided of course that you have equity in your property.
What is fairness?
It is the difference between the current value of your home and the balance that remains to be paid on your mortgage loan.
Good to know: You can refinance up to 80% of the market value of your home.
So for a $300,000 house on which you have $150,000 left to repay, you could borrow $90,000 to make renovations: $300,000 × 80% − $150,000 = $90,000.
This option is interesting if the work envisaged must give more value to your house. By raising the value of it, you increase the chances of selling it for a profit when the day comes.
Like all the others, this financing option comes with its advantages and limitations.
Benefits: You will benefit from a generally lower interest rate than with another financing solution.
Your loan may be amortized over a longer period, which will reduce the value of each payment.
You’ll preserve your savings, cash, and emergency fund.
To consider: Before choosing this option, make sure that your work will add value to your property.
In some cases, you will have to pay legal fees related to the registration of the refinancing of your mortgage loan with a notary.
Look for government grants and tax credits
Some provincial governments offer grants and tax credits for energy-efficient renovation projects that could help you reduce the cost of your renovations.
You will need to ensure that you meet all the eligibility criteria and also ensure that the programs are still in effect when you undertake your renovations.
Do your calculations beforehand
Before choosing your financing option, make a budget for your renovations in order to properly assess the total cost of the work.
Do you want to be sure to have the means of your ambitions? Calculate your debt-to-income ratio. Talk to your advisor; it will help you choose the solution best suited to your needs.
Finally, have you made an overall budget in addition to that for your renovation project? By crossing the two, you will determine the amount you could free up each month to repay your loan for the work.
No matter the extent of your renovations, always plan an amount for contingencies.
Is refinancing your best option?
Refinancing your home can open up great possibilities for you. Considering all the factors – the current value of your home, how long you intend to keep it, and the importance of the goals you plan to finance – can help you make your decision.