If you are thinking about refinancing your mortgage you are not alone. With interest rates as low as they are, for as long as they have been in Canada, many homeowners over the last little while have debated if mortgage refinancing makes sense for them.
What's the upside to mortgage refinancing in Canada?
It all comes down to saving money. Will you, or will you not save money by refinancing your mortgage?
There are a variety of ways that a homeowner may save money by refinancing, like:
- Getting a mortgage at a lower interest rate. If your mortgage is at a higher rate than what is available today, refinancing may make sense.
- Getting a mortgage product that offers flexibility that you do not already have with your current mortgage; this way penalties and costly interest can be avoided.
- Consolidating other debts. With rates so low, a person can refinance their mortgage to consolidate other debts that may be at a much higher interest rate.
Tips to pay off your mortgage sooner
What are the drawbacks to mortgage refinancing in Canada?
In a nutshell, penalties. When refinancing a mortgage agreement, your lender will likely apply a penalty if you are refinancing before your term ends. Depending on the penalty, you may choose not to refinance your mortgage at all. Basically there are three types of penalties: a set flat-fee penalty, a 3-months interest penalty, or an interest-rate differential (IRD) penalty. The type of penalty you have will be outlined in your mortgage agreement.