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If you are looking to refinance
your current mortgage you will be doing so for one of three
reasons; to consolidate debts, to reduce your interest rate
or to get equity out of your home.
We will deal with each of these issues separately. The message
here is to seek out professional advice because every situation
is unique and it needs a unique solution!
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Debt Consolidation
If you are perpetually
carrying large credit card balances, or have other high interest
rate loans, it may make sense to consolidate these debts into
your mortgage. Not only will you reduce the interest rates you
are paying but you will also improve your monthly cash flow.
You can refinance
these debts several ways. You could consolidate all your debts
into one big mortgage, just add a small second mortgage or even
a secured line of credit.
Reducing
Your Current Interest Rate
If you are locked
into a high rate mortgage you may want to break your current mortgage
contract and renegotiate a new mortgage with a lower rate. You
might want to know that unless your mortgage contract specifically
allows for this, your current lender is under no obligation to
allow you to renegotiate your mortgage rate. Although, most lenders
will allow you to prepay your mortgage with the greater of a three
month interest penalty or an interest rate differential calculation.
You should begin by finding out what your lender will charge you
to renegotiate your mortgage rate. Once you determine the penalty,
then you can begin to calculate the potential benefits of a lower
interest rate.
Equity Take
Out
Many Canadians
choose to refinance their mortgage in order to finance a new addition,
for an investment opportunity, to help their kids buy a home,
to finance a new business etc.
Bottom Line
When it comes to
refinancing there can be many ways to structure the same transaction
and you need to know all your options before you can make an informed
choice.
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