Gosh dang, there are so many different mortgage terms it can be hard to keep up (even after you’ve already qualified and funded your mortgage). Good thing you have an awesome mortgage specialist like us who are more than happy to walk you through every step of your mortgage life.
What is a Mortgage Renewal?
Every mortgage has a term and an amortization period. The term is the shorter between the two, usually ranging from 2-5 years. Throughout this period, your mortgage terms in your commitment are locked in (unless you have a variable rate of course). The amortization period is the longer one, usually ranging from 25-30 years. This can be considered as the life of your mortgage and how long you have to pay off the loan in its entirety. Now, throughout your amortization period, whenever your term period is up, you’ll have to renew your mortgage. A good way to think about a mortgage renewal is like a reset button. It’s a perfect time to review your mortgage strategy and make changes if desired. For example, let’s say you had a 2-year term when you funded your mortgage because rates were declining and you didn’t want to be stuck with the rate you got for too long, but now want a longer term, like 5 years, because rates are rising again and you want to keep the lower rate for as long as possible. Make sense?
To summarize, a mortgage renewal is when your mortgage term is up and you need to renegotiate your mortgage rate. An important thing to remember is that the worst thing you can do at the time of renewal is to blindly renew with the same lender. Chances are, by checking out what other institutions are offering, we can get you a better rate!
What is a Mortgage Refinance?
Refinancing your mortgage can be a great financial tool if used properly. When you refinance your mortgage, you’re accessing the equity from your property. For example, let’s say your house is worth $700,000. Typically, you can access up to 80% of your property’s total value. So you could access $560,000 and use it for a variety of things, such as renovations, debt consolidation, or investing in another property. Although keep in mind that the actual amount of money you can use from the refinance is the difference between the value and the outstanding balance on your current mortgage. So if you had $300,000 left to pay off on your current mortgage, the liquidity from a $560,000 refinance would be $260,000 (which is still a great chunk of change!)
So by refinancing my mortgage, I’m basically restarting my mortgage?
Technically yes. If you had an outstanding balance of $300,000 and you took out $560,000, you now owe the lender $560,000. Refinancing isn’t for everyone, but as mentioned it can be a great asset to increase your financial stability. When you refinance your mortgage, your amortization period restarts - so you still have enough time to pay off the loan in its entirety. When you think about the investments you can make with the cash you accessed through the refinance, it’s quite possible it will increase or add a stream of cash flow to your income (depending on what you do with it), so down the line you may be able to handle higher monthly payments and pay your mortgage off sooner.
Should I renew or refinance my mortgage?
This is not a simple question. Everyone’s financial situation is different and so are their comfort levels with utilizing their mortgage as a financial tool. To answer this question depends on your financial situation and your long term goals. The best step to take first is to contact your mortgage specialist (hopefully it’s me) and we can explore the best options for you.