Canadian Mortgage refinancing could be the refinancing of a first mortgage or it could be a new second mortgage. Any time you own your home and obtain new mortgage financing, it is considered mortgage refinancing. The question is with all of the choices available it is often unclear which is the best choice?
Refinancing your first mortgage can be a good choice but can also carry negative implications if it is not arranged properly. The longer you agree to repay debt, the more money the bank earns. For example, if you have 19 years left on your mortgage amortization, many financial institutions and brokers will quote your new mortgage based on a 25 year or 30 year mortgage. This may save you a couple of hundred dollars per/mo. When you look at the amount that you are paying to debt and what the mortgage would look like if amortized over the 19 years as an example, a mortgage refinance keeping your existing amortization at the 19 years will in many cases still free up a significant amount of cash flow and save you a significant amount of interest.
Refinancing your first mortgage carries many benefits. More and more folks are choosing second mortgages as an effective way to keep their consumer debt separated from their first mortgage debt. This is the best way to see that you actually pay off your first mortgage. Choosing to refinance your home and get a second mortgage provides a lot of flexibility, but the bank in this case will often recommend a line of credit or that you amortize your new second mortgage over 20 or 25 years to provide you with “the lowest monthly mortgage payment”. The end result is a never ending payment that never gets your debt paid off because it will often only pay interest. Most people will just pay the minimum amount due on their statement each month, which often represents mostly interest. This makes the banks a lot of money.
Canadian mortgage refinancing can be achieved in a manner that is favourable to a consumer but for this to happen the consumer must be informed. If you were to get a second mortgage, amortization is important. If you owed $20,000 as an example and you amortized your repayment over 15 years you would have a monthly payment of approx. $250 per/mo. If you amortized the same amount of debt over 5 years you would have a monthly payment of approx. $450 per/mo. The 5 year amortization would see that you would be debt free in 5 years and that your first mortgage was not interrupted. When you look at your minimum payments to your credit cards, which only cover interest in most cases, the 5 year amortization could put hundreds of dollars per/mo. of cash flow back into your pocket.
We don’t really advocate lines of credit because they are like taking out one big credit card and there is no fixed repayment term (no end in sight) so we would recommend that you get a second mortgage over a line of credit.
No matter which way you go, don’t make any choices before you get informed about Canadian mortgage refinancing. You can get a second mortgage, first mortgage or line of credit through a mortgage broker which is a more competitive option than going directly to your bank. A mortgage broker represents your best interest first.
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