Renewing your mortgage is an opportune time to reassess your needs and ensure the mortgage is working for you and not the lender. Rate is the easy part, but not all mortgages are created equal. Let’s look at the whole picture, adapting the term, payments, and privileges to your advantage.
Canadian mortgages vary based on their loan-to-value, simply put, the current mortgage balance over the home’s current value.
The home is the asset that secures the mortgage loan. The more that is owed relative to its value will dictate what type of mortgage needed.
In the eyes of the bank, it’s all about risk. Among other variables, such as Credit Scores Income, and debt, the main factor is the property loan-to-value.
This is where the National Housing Act allows for a purchase with a lower down payment, as low as 5% of the purchase price. To achieve this, the mortgage must be insured to alleviate the risk from the bank, with the insurance premium passed onto the homeowner.
Over time, as you make regular payments, the mortgage balance decreases and the home’s equity increases. When the loan-to-value drops below 80%, then we look at tapping into this equity. After all, this is the smartest way to borrow, meaning it has the lowest cost or less interest paid.
If you are looking to take equity out of your home for a large project, lower your interest rate or consolidate debts to save on interest, refinancing could be the right option. As a mortgage broker, I will assess your mortgage needs to determine the best product for you.
A New Mortgage
Refinancing is a great way to consolidate debts and access funds with the lowest cost of borrowing. Access up to 80% of your home’s equity for projects.
Home Equity Line of Credit
Similar to refinancing, a HELOC will allow access up to 80% of your home’s equity but through a line of credit. This is great way to access funds when you need them.
A Reverse Mortgage lets you remain in your home and access up to 55% of your home’s value to finance your retirement.