What is a Mortgage Refinance?

A  mortgage refinance in Ontario Canada is a new loan taken out by a borrower to pay off the original loan or the loan can pay off the last refinanced loan. The refinanced loan is typically in first position; however, it is also possible to refinance a second mortgage or home equity loan.

Types of Refinance Mortgage Loans

If you are presently have a mortgage with a fixed rate of interest, this does not mean that you can't take out a different type of loan when you refinance your mortgage. However, before you consider switching out of a fixed-rate mortgage for another type, be sure to ask your mortgage broker about the different  types of mortgage loans that are available.

• Longer amortization period.You may have the option of shortening your amortization period, this is the length of your mortgage, many mortgages have a length of 25 years. Borrowers can extend the length of the loan which can lead to reduced monthly payments. Therefore what was originally a 25 year term mortgage can become a 30 year term mortgage.

• Bigger mortgage. By including the costs of your new loan into the original loan, you are actually taking out a bigger mortgage. The larger mortgage will eat into  some of your home equity. The same will happen if you take out cash, called a cash-out refinance, your mortgage loan balance will be increased.

  Many borrowers take out cash from a mortgage refinance to pay off bills incurred by unsecured purchases or to pay off credit cards. Paying off unsecured credit cards eliminates present debt, you may want to consider a credit counselor at this point.

Refinance Benefits

• Lower monthly payment. If you plan to stay in the home long enough to break even on the refinance costs, a lower interest rate and payment will result in greater monthly cash flow.
• Shortening the amortization period. If your lower interest is substantially lower than your previous rate, you might want to consider shortening the term of your loan in exchange for a slightly higher mortgage payment. Before you do this, figure out if you could invest that extra principal portion elsewhere for a better rate of return.
• Cash in hand. Some people use the cash from their refinance to invest in products that have a higher rate of return than the new interest rate.