A mortgage’s there to help you afford your dream home so you can start living in it for the years to come. It’s also the largest single debt an average Canadian has to pay off. After placing your down payment, lenders cover the rest of the costs. All you have to do is pay the balance with the interest according to the agreed mortgage term. Sounds tough? Don’t worry! Remember that your mortgage plan is flexible and should change when your situation changes.

The reality’s that most Canadians don’t have the money to pay off their mortgages in full. Unless you’ve got all the cash to pay off your balance during the first term, you’re most likely part of the 36.3% Canadian homeowners who still have mortgages to pay for. In fact, an average Canadian has a whopping mortgage balance of $73,532.

Loans usually have a period of 25 to 30 years. In this case, it’s a far-fetch to expect loans to be paid during a short period of time. You’ll surely encounter sudden bumps along the way that’ll lead to drastic changes. Remember that as you face these situations, you can refinance your mortgage to better suit your finances.

Mortgage Renewal Vs. Refinance – What’s the Difference?

Your mortgage is a reflection of your financial situation. As your situation changes, your mortgage plan should adapt. In order for your mortgage to follow suit, it’s best to consult a mortgage broker and determine whether a mortgage renewal or refinancing is more apt for you. But first thing’s first – what’s the difference?

What’s a mortgage renewal?

Getting approved for a mortgage means that you’re entering an agreement to pay off a loan within a specific period of time, called a mortgage term. Simply put, a mortgage renewal’s a continuation of your current mortgage with new terms. This means that you’re agreeing to stay with your current lender for another term. Terms and conditions generally stay the same, but it’s also designed to pay off the remaining balance of your loan. This’ll also apply current interest rates.

You can get your mortgage renewed towards the end of your term. So, if you’re happy with your current lender and your mortgage broker’s research suggests that this is the most cost-efficient way, then a mortgage renewal will definitely be the best option for you.

What’s mortgage refinancing?

Mortgage refinancing, means you’re swapping your existing mortgage for a new one. Assuming your financial situation has changed, you can refinance for lesser monthly mortgage payments by accessing lower interest rates. Take note, however, that refinancing your mortgage comes with a cost. Since you’re starting a new mortgage, there’ll be fees that you’ll need to pay.

Both mortgage renewal and refinancing are options you have so you could manage your loans, while at the same time, securing your financial and living situation. These are important options to keep in mind, to help you keep your dream home while being flexible to unpredictable situations you may encounter.

Choosing what’s best for you is just a matter of knowing your options and your current financial situation.

When should you renew your mortgage?

Your mortgage is about to end and it’s still unpaid

Renewing your mortgage is a straightforward option when your mortgage is ending and still unpaid. With a mortgage renewal, the lender is offering to reset the term, to help you pay off the remaining balance. This includes resetting the principal amount and mortgage rates, term and frequency of mortgage payments.

You want to swap flexible payment options

A mortgage renewal may be suitable for you if you want to switch to more flexible payment options. If you find yourself in a situation wherein your income changes, you’re financially affected by the pandemic. Or if you’d want to pay off your mortgage sooner, this’ll be good for you.

A mortgage renewal allows you to start fresh with your mortgage and make the necessary changes, such as swapping a closed mortgage for an open one. While closed mortgages offer predictability and lower rates, open mortgages allow you to pay off early. This comes with higher interest rates, but without the risk of paying penalties.

When should you refinance your mortgage?

You want lower interest rates

One of the best reasons to refinance is to lower your mortgage rate and other borrowing costs by taking advantage of a lower interest rate

You want to consolidate debt

Debt consolidation is a financial solution that pools together multiple loans, so you can pay them off through a single monthly payment with an interest rate. This is necessary if you find yourself faced with outstanding credit card bills and other high interest debt obligations. Debt consolidation eases the burden of having multiple debts and consolidates them into a single debt. 

Mortgage refinancing allows you to consolidate your debt with a lower interest rate. This is extremely helpful as this relieves you from high-interest debts. However, this must be taken with utmost financial prudence and planning, as you may end up spending what you saved from mortgage refinancing and debt consolidation.

You need money for renovations and other needs

Owning a home entails a lot of maintenance and upkeep. Sooner or later, you may need to do some repairs or home renovation. Refinancing your mortgage provides the necessary funds to complete these repairs or renovations – regardless of whether it’s a new kitchen with newest appliances or that dream ensuite bathroom. You can also refinance your mortgage if you want to invest in another property or simply need the extra cash. 

You want to make the right choice? Talk to an expert.

Making the decision between renewing or refinancing your mortgage involves many factors which you need to take into consideration. The choice of whether to refinance or renew your mortgage is very important and you’ll want to do what fits your individual circumstances. 

Be sure to evaluate your options before simply signing your renewal papers with your lender. Take some time to explore your options to get to know what’s available to you. This is where Daisy comes in.

Daisy Raouph is a mortgage broker and financial security advisor, who works with multiple financial institutions and lenders, to get you the best rates and terms. Get in touch with Daisy Raouph today!

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