Is Now the Time for a Cash Out Mortgage Refinance?
Most people at some point in their lives will need access to a large lump sum of cash. This could be to consolidate debt, pay for an investment, to remodel their home or perhaps to pay for an unexpected emergency. One way to access this cash, is through cash out mortgage refinancing.
What this means is that you will have to break your current mortgage to get a larger mortgage. Some of the equity that you already have in your home, you will get in cash. If you have owned your home for several years and have been paying off your mortgage regularly, you should have built up some equity. But especially if you live in the Toronto area, your home value is likely to have gone up significantly over the past few years meaning that you probably have much more equity in your home than you think!
This means that it could be a great time for you to get cash out mortgage refinancing.
Of course, it is not the right decision for everyone and there are three main things that you should take into consideration before getting a refinance.
Your interest rates will likely be higher.
Over the last year, the Bank of Canada has made several increases to the interest rate. This means that your new interest rate will likely be higher than it currently is. However, even if your mortgage interest rate is a little higher, this is still a much less expensive option that other forms of borrowing such as credit cards.
You may have to pay a penalty.
Typically, when you break a mortgage (as you have to do with a cash out refinance), you will have to pay a financial penalty to the lender. Usually, the closer you are to your mortgage renewal date, the less that penalty is. In many cases, the money saved with a cash out refinance more than covers any penalty.
If you have recently renewed your mortgage however, a refinance might not be your most cost-effective option. This is why it is a good idea to sit down with your mortgage broker who can run calculations for you and help you determine whether refinancing or another mortgage solution is right for you.
You should avoid going back into consumer debt.
Especially if the purpose of your cash out refinance was to consolidate debt, you should make a commitment not to rack up those credit card debts again. Refinancing can be a good option to get you out of financial trouble, but if you go right back into debt again, you’ll be in a worse financial situation than when you started.
Would you like to learn more about cash out mortgage refinancing and see if it is right for you? Then call Matrix Mortgage Global today!