Learn whether mortgage refinancing is ideal for your situation or not with the help of a mortgage professional from our network.
22 avril 2019
Category Blog
22 avril 2019,
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What debts should you refinance? Is mortgage refinancing a solution for you? How does refinancing your mortgage work? Is debt refinancing still possible? What is the calculation for refinancing your debts? What are the advantages and disadvantages of mortgage refinancing?

Reminder: What is mortgage refinancing? Is this an option for you?

Learn whether mortgage refinancing is ideal for your situation or not with the help of a mortgage professional from our network.

To know the equity in your home (or equity), just determine its market value, then subtract what you have to pay on your mortgage.

Thus, the net worth of a newly purchased home will be very small, the amount of the mortgage being generally rather high. On the other hand, your mortgage repayments over 15 or 20 years will significantly increase the equity in your home.

You can refinance the remaining mortgage on your home using the equity value of the house as collateral.

In fact, for a financial institution, the equity of your home is considered to be cash.

You can access a portion of the equity of your home and use that amount as you see fit; for example to pay off your debts.

The Bank of Canada has established the maximum mortgage refinancing available to you at 80% of your property’s net worth.

It can be profitable for you to consolidate several loans with high-interest rates (credit cards, personal loans …) and refinance them at a lower interest rate.

 

When is mortgage refinancing profitable? For which debts?

When interest rates are relatively low and the real estate market tends to drive up the market value of your home, it can be very interesting to increase the mortgage on your home to pay off your high-interest debts.

 

Types of debt for which mortgage refinancing can be profitable

 

If you are having trouble repaying your multiple debts, mortgage refinancing may be beneficial for you.

However, it is not possible to refinance all types of debt. Generally, only unsecured debts can be included in a mortgage refinancing.

In order to inform you and to help you determine if refinancing your debts is a suitable option, here is a list of debts (all unsecured) that can generally be refinanced:

  • Credit Cards: It is very common for credit card debt to be the main reason for applying for mortgage refinancing
  • Personal loan for which you had no guarantee
  • Unsecured loans issued by a credit union, associated with excessive credit card debt
  • Debt linked to a vehicle repossession for non-payment
  • Gas card
  • Non-government or private student loan
  • Unpaid cellular bills from a previous service provider
  • Debts from a public service that you no longer use
  • Some medical bills

Not all medical bills qualify but a few may be included in a mortgage refinance.

If excessive medical bills are the main reason you want to refinance your debts, it would be wise to seek the advice of a mortgage professional such as a mortgage broker.

Note that financial institutions, as well as various lenders and creditors, are under no obligation to refinance your debts. That’s why the skills of a seasoned mortgage broker can help you find a solution to ease the financial burden.

Do not hesitate to contact an experienced Mortgage Broker, a partner of Best Mortgage Quote, using our online platform.

By filling out the short online request form on this page, you will receive, in less than 48 hours, a response from an experienced mortgage broker in your area.

Indeed, upon receiving your request, the Best Mortgage Quote team will search for you, at no cost and without any obligation, the professional mortgage broker whose area of expertise, experience, skills, track record, and qualifications are tailored to your needs and expectations.

 

What is the calculation for a mortgage refinance?

Ask a mortgage broker to help you calculate how much you can get for mortgage refinancing to pay off your debts.

In essence, mortgage refinancing allows you to take advantage of cash that you could obtain in other ways at such a favorable interest rate.


Calculating a Mortgage Refinance Benefit

 

Consider the following refinancing calculation:
The market value of your home $225,000
The balance of your mortgage loan $120,000
Mortgage interest rate 5%
Amortization period 25 years
Debts $17, 000  (total of 2 credit cards) at  18 % interest

$15,000 (credit line) at 9% interest
$15,000 (auto loan) at 8.5% interest

Total of $47,000

 

You have decided to refinance your home at 80%, the maximum value allowed.

 

Calculation of your loan limit $225,000 (market value) x 80% = $180,000
$ 180,000 – $120,000 (mortgage balance) = $60,000

 

Your new mortgage will be $ 120,000 (the old mortgage balance)

+ $60,000 (your new loan)

$180,000 (your new mortgage balance)

 

 

The total of your debts to be repaid:

Amount from your mortgage refinancing – Payment of debts = Balance

$ 60,000 – $ 47,000 = $ 13,000 (remaining balance)

 

This calculation to refinance your mortgage keeps the initial amortization.

Of course, the mortgage payments are increased by the new mortgage balance.

You do not have to add $60,000 to your mortgage. You can borrow only the amount to refinance your debts to make the transaction more advantageous.

 

When is refinancing your debts not beneficial?

Here is another example that demonstrates that it is not always beneficial to refinance your debts.

Feel free to fill out the FREE form on this page to obtain the services of a mortgage broker in your area that can best meet your needs according to your particular situation.

  

Market value of your house $200,000
Balance of your mortgage loan $120,000
Mortgage interest rate 5%
Amortization period 25 years
Debts $17,000 (2 credit cards) at 18% interest
$15,000 (credit line) at 9% interest$15,000 (auto loan) at 8.5% interest
Total of $47,000
Your monthly payment $2,280
(including your mortgage payment of $700/month)

 

You have decided to refinance your home at 80%, the maximum value allowed.

 

Calculation of the limit of your loan

$200,000 (market value) x 80% = $160,000

$160,000 – $ 20,000 (mortgage balance) = $40,000

Your new mortgage will be

$120,000 (the previous mortgage balance)

+ $40,000 (your new loan)

$160,000

According to this calculation, the authorized limit for your loan would be $ 40,000 while the total debt is $ 47,000. What’s more, your mortgage would now be $ 160,000 (rather than $ 120,000). Your mortgage refinancing would not be advantageous.

Moreover, refinancing your debts entails various costs that you must take into account. We list these a little further.

More information on calculating mortgage financing here.

 

The advantages & disadvantages of refinancing a mortgage:

 

The benefits of refinancing your debts

Here are the benefits of taking advantage of the low-interest rate to refinance your debts:

A single monthly payment

Since your mortgage payment and other debts are grouped together, you only have one monthly payment to make.

A much lower interest rate

Monthly payments of your loans at 15%, 18% or 20% interest will be reduced to 3% or 5%.

Invest the cash obtained from your mortgage refinancing

You can use the money from your mortgage refinancing to pay your new loan faster which will eliminate your debts.

You can also make an investment such as in the real estate market, in your RRSP, etc.

Invest the money you obtain from your mortgage financing or pay off your loans faster at a reduced interest rate to save even more.

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