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If you are hoping to refinance your home mortgage in Canada, there is a good chance that you could have bad credit. Why can I refinance my mortgage with a bad credit score if this is the case? The answer to that question is very simple.
Most creditors will accept scores from other institutions available to the general public. This means that even if your score is not where it should be, you can still refinance your home loan with bad credit if you follow a few simple steps.
When Is a Mortgage Refinance Needed?
If you wish to make significant modifications to your mortgage arrangement, you will need to refinance your mortgage. This is so because a mortgage is a contract that will be in force for a specific period. Refinancing your mortgage is necessary to pay off your present mortgage and finance a new mortgage in order to break your contract.
Whether or not your mortgage is due for renewal, a refinance is required whenever you want to make substantial changes to your mortgage arrangement. The following modifications will necessitate a mortgage refinance:
- Increasing the mortgage balance to increase the amount borrowed
- Changing the interest rate on your mortgage before the term is over
- Changing the duration of your mortgage term or amortisation period
Can I Refinance My Mortgage After One Year in Canada?
Not just at the end of your term, you can refinance your mortgage anytime. You can borrow money for purposes like debt consolidation. You can still refinance after your term, but there will be fees if you do so before it expires.
Before refinancing, you must wait at least seven months or long enough to make six monthly payments. You can only have one late payment (30 days or more late) in the six months prior to that, and all mortgage payments due in the previous six months must have been made on time.
How Do I Refinance My Mortgage?
First, determine whether a mortgage refinances is the best option for you or if there are other preferable options. Check to see if your interest savings would outweigh any mortgage penalties you would have to pay if you were refinancing to receive a lower interest rate. Your refinanced mortgage cannot be more than 80% of the value of your home if you want to increase your borrowing capacity.
Once you’ve decided why and what you want to change, compare offers from various mortgage lenders and mortgage brokers. You are not required to use your present mortgage lender and refinance. Other lenders can provide lower mortgage refinance rates than your current lender. But moving loans may incur costs, such as discharge fees.
It’s the same process to refinance your mortgage as applying for a new one. You will need your pay stubs, tax returns, and statements to present to your lender. You will be required to undergo a home appraisal as well as pass the mortgage stress test on your new refinanced mortgage balance.
Costs of Refinancing
Since you are replacing your current mortgage with a new mortgage, mortgage registration and legal fees are included in the cost of a refinance. A home appraisal will cost money as well. Other fees are influenced by where and when you refinance.
If you refinance using a different lender, you will pay a mortgage discharge fee. Discharging removes your former lender from your property title and instals your new one in its place.
Depending on your mortgage, you may have to pay mortgage prepayment penalties if you refinance before the term is up. You will be required to pay three months’ interest as a penalty for closed variable-rate mortgages. The penalty for closed fixed-rate mortgages is the greater of three months’ interest or the difference in interest rates. Visit our mortgage penalty calculator to determine your mortgage break penalty.
Prepayment penalties do not apply to open mortgages. Refinancing your mortgage when it comes up for renewal at the end of your term can also avoid prepayment penalties.
Does It Make Sense to Refinance My Mortgage?
If you can refinance at a lower mortgage rate that covers the cost of any mortgage penalties for ending your term early as well as additional mortgage refinancing expenses, you should do so. If you want to borrow money against the equity in your property, you can also refinance. However, if you refinance mid-term, your savings from borrowing through a mortgage refinance should outweigh the fines for defaulting on the loan.
Most large banks impose a mortgage break penalty on fixed-rate mortgages that are equal to either three months’ interest or something referred to as an interest rate disparity (IRD). The interest rate differential, or IRD, is the difference between the interest on your current, non-discounted mortgage rate and the interest on a mortgage for the same amount of time left on your mortgage term at the current posted rate. To see how much you could save or spend if you refinance your mortgage, utilise a mortgage refinance calculator.
Consider that you have two years left on a $500,000 fixed-rate mortgage with a five-year term and a 3.00% interest rate. You observe that current mortgage refinancing rates are as low as 2.00%.
You will be required to pay interest of $29,029 at 3% for the following two years if you decide not to refinance. If you decide to refinance, you will have to pay interest of $19,320 at a rate of 2% for the following two years. As a result, interest costs are reduced by $9,709.
However, there are prepayment fees if you pay off your mortgage early. The mortgage penalty, or the price of refinancing the mortgage, will be $5,000 if the current posted rate for a 2-year fixed-rate mortgage is 2.5%. This indicates that over two years, refinancing your mortgage will save you $4,709.
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