by Jason Roy

Fixed mortgage rates have once again reached near historic lows which have prompted many to consider refinancing their mortgages.
Nearly every day I receive a phone call from a homeowner who wants to refinance to a lower rate mortgage because they see that they can save 1% – 3% from their current rate.
As simple as it seems to change your mortgage to a lower rate to take advantage of rates that will unlikely be seen again for some time to come there are many complex questions that need to be considered. Simply refinancing without looking at the complete picture may come at a cost.
This is not to say refinancing is not worth your while if you are consolidating other higher interest debts or planning to use the money for a renovation, but the savings may not be as much as you might think.
Home owners really need to look at their borrowing needs as a whole and not just look at their mortgage. Mortgage interest rates are likely the lowest rates that can be obtained for debt financing but may not be the right option for all situations.
The reason why refinancing is not a clear cut solution is simply that there are penalties and other costs associated with changing your mortgage. The lenders charge a penalty for breaking your mortgage (unless you are in an open term mortgage) and that penalty is dependent on the size of the mortgage, existing rate, current rates, and number of years you have left on the current mortgage. This penalty could end up costing tens of thousands of dollars.
Along with the pre-payment penalty on your mortgage there will be legal fees, appraisals fees, and possibly mortgage insurance fees if your mortgage is higher than 80% of the current value of your home.
All of these costs need to be considered to determine if there are in fact any savings associated in refinancing your mortgage. Many are surprised to learn that it will in fact cost them more in the long run to refinance to a lower rate then it will to just keep their current mortgage.
If you are considering refinancing your current mortgage be sure to weigh out all of the following:
a) Costs associated with breaking your new mortgage
b) Costs associated with obtaining a new mortgage
c) Savings from the new lower mortgage interest rate
d) Savings from consolidating higher interest debts (credit cards, car loans, etc.)
e) Benefits associated with using your home equity for renovation or investment purposes.
f) Security obtained from locking into a low rate mortgage for another 3 – 5 years
Working with a trusted Mortgage Professional who specializes in residential mortgages will insure that you are looking at all angles of your finances and help to determine what the right course of action is. By spending the time to figure out exactly what the net benefits are with respect to refinancing your mortgage you will be sure to have confidence in whatever decision you make going forth.

Jason Roy AMP
Residential Mortgage Specialist
TMG - The Mortgage Group Canada Inc.

Direct: 780-463-4713
Toll free: 866-612-1312
Email: jroy@mortgagegrp.com
www.jasonroymortgages.ca