Does Refinancing Mortgage Make Sense Right Now?

April 28, 2020 | Posted by:

Does Refinancing Mortgage Make Sense Right Now

Winnipeg homeowners who are financially impacted by the government mandated economic lockdown are looking for ways to free up cash. Some are taking out home equity loans, which is a great option for many. However, there is another possible way to access cash indirectly - lowering your monthly expenditure by refinancing your mortgage. But does this major decision make sense at the moment? Let’s find out.

3 Signs Mortgage Refinancing May Be a Good Move for Winnipeg Homeowners Amidst the Forced Economic Shutdown of 2020

When Refinance Rate is Significantly Lower Than Current Fixed Rate

There is a general rule of thumb. If you can reduce your current interest rate by 1% or more by refinancing then it may certainly make sense as your monthly payments should fall significantly enough to provide the extra cash you need. For this reason you need to hunt down the best possible refinance rate, which makes connecting to a mortgage broker essential. An reputable independent broker will have access to unadvertised rates due to their standing relationships with lenders. Those lenders offer brokers “bulk discounts” that you will not receive when approaching them on your own. At the very least you should call 204.290.9950 to find out.

When Break-Mortgage Penalty and/or Closing Cost is Lower That Refinance Savings

Finding a favorable refinance rate isn’t all you need to consider in your calculation. Your fixed rate mortgage terms may indicate a penalty for those who break their mortgage, even if it’s to refinance. The penalty is typically three months worth of interest, or an interest rate differential (IRD) which is dependent upon whether or not you’re breaking a fixed or variable mortgage. Figuring out what your IRD is on your own can be a challenge. Alternatively, a broker will read through the fine print and calculate the IRD. If this cost balances out (in a negative way) what you save by refinancing then it may not be worth the effort.

There are also closing costs to consider. Just like when you first entered into your mortgage, there are a number of costs for reappraisal, insurance, attorney’s fees, taxes, transfer fees, and possibly more. If these other refinancing costs run within 3 to 6 percent of your principal it can take years to recoup, which defeats the purpose of a refinance to free up money to make it through the economic crisis. Again, a broker is an expert who can help you not only calculate, but reduce these costs through their established connections.

You Can Show Your Not at Risk of Default

Lenders know you’re most likely refinancing to lower your monthly payments. There’s nothing inherently wrong with that from their perspective, especially if it provides them with confidence that it will help you manage your mortgage. However, these are not normal times, and lenders may take your move to refinance as one that indicates risk. They may ask to verify that you have not incurred sizable new debt over the last few months, and to show that your income remains stable in a time where very few households can confirm so. If your income (and income potential) has not been aversely affected then your refinance inquiry will not be seen as one that comes with concerning risk. No matter your position, it’s best to approach lenders with a broker at your side. Call 204.290.9950 to get the ball rolling.

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