Should You Refinance Your Mortgage in Alberta?

Your mortgage may have been the right fit when you first got it.

But that doesn’t necessarily mean it is still the right fit today.

Maybe your income has changed. Maybe you’ve paid down a significant amount of debt. Maybe your home is worth more than it was when you purchased it. Maybe you’re thinking about renovating, investing, buying another property, or simply creating more room in your monthly budget.

Life changes.

Your mortgage should be reviewed when it does.

Refinancing can be a powerful financial tool for Alberta homeowners, but it is not automatically the right answer for everyone. The goal isn’t simply to borrow more money or find a lower rate.

The goal is to determine whether changing your mortgage can put you in a better financial position.

What Does It Mean to Refinance Your Mortgage?

In simple terms, refinancing means making changes to your existing mortgage.

This could mean increasing the amount you owe against your home, changing the structure of your mortgage or using some of the equity you’ve built.

Depending on your situation, refinancing may allow you to:

• Consolidate higher-interest debt
• Access home equity
• Renovate your home
• Improve monthly cash flow
• Invest in another property
• Fund a business or investment opportunity
• Change your amortization
• Restructure your mortgage

The important thing to understand is that a refinance is different from a regular mortgage renewal.

Using Your Home Equity

Over the years, you may have built up significant equity in your home.

That equity can potentially become a financial tool.

Depending on your goals and qualification, homeowners may use equity for things such as:

• Home renovations
• Investment properties
• Real estate projects
• Business opportunities
• Debt consolidation
• Other major expenses

This is where mortgage planning becomes particularly important.

Having equity doesn’t necessarily mean you should borrow against it.

The question is:

What are you going to do with the money once you access it?

If there is a clear strategy behind the borrowing, the conversation becomes very different.

Refinancing to Improve Cash Flow

Sometimes homeowners aren’t looking to access money for a large purchase.

They simply want more breathing room every month.

If your financial situation has changed, refinancing may provide an opportunity to restructure your mortgage and potentially reduce your required monthly payments.

This could be especially useful if you’ve accumulated other debts or your financial priorities have changed.

However, extending your amortization to lower your payment can increase the total amount of interest you pay over the life of the mortgage. This is where prepayment privileges come into play.

What If You Want to Invest?

This is another area where refinancing can become part of a bigger strategy.

For example, you may have built substantial equity in your Calgary or Alberta home and are considering purchasing an investment property.

Accessing equity from your current home may allow you to use some of that capital toward another property.

The important part is understanding the entire picture.

How much can you access?

How will the additional payment affect your monthly cash flow?

How will the new debt affect qualification?

How will the investment perform?

And, perhaps most importantly, does the strategy make sense for you?

These are very different questions from simply asking, “What’s the best mortgage rate?”

Your Mortgage From Five Years Ago May Not Fit Your Life Today

This is one of the biggest reasons homeowners should review their mortgage periodically. Think about where you were when you originally got your mortgage.

Your income may have been different.

Your debts may have been different.

Your family may have been different.

Your goals may have been completely different.

Maybe you were focused on getting into your first home.

Now you may be thinking about building an investment portfolio.

Or maybe you’ve decided you want to become mortgage-free as quickly as possible.

Your mortgage should support what you’re trying to accomplish now, not simply continue because that’s what you originally set up.

But Refinancing Isn’t Always the Right Answer

This is important.

Sometimes the best mortgage strategy is not to refinance. Renewing with the same, or a different lender may be. 

Refinancing can come with costs, including potential mortgage penalties, legal fees, appraisal costs and other transaction expenses.

You also need to consider the long-term cost of increasing your mortgage balance.

Before making a change, you want to understand whether the financial benefit of refinancing is greater than the cost of doing it.

Refinancing vs. Renewing

These two terms get mixed up all the time.

They’re not the same thing.

If you’re coming up for renewal and simply want to move your existing mortgage to another lender without increasing the mortgage amount or extending the remaining amortization, different rules apply.

A straight switch can be much simpler than a refinance.

If you want to increase the mortgage, access equity or make other significant changes, you’re generally looking at a refinance and will need to qualify accordingly.

This is why it’s worth having the conversation before you sign your renewal paperwork.

You may have more options than you realize.

Don’t Let the Rate Be the Entire Conversation

This is probably the biggest point I want homeowners to take away.

We have more access to mortgage rates than ever before.

You can Google them.

You can find comparison websites.

You can see mortgage advertisements on social media.

You can find a rate in about 3 seconds.

But a mortgage is so much more than a rate.

The questions that can have a much bigger impact are:

• What are your prepayment privileges?
• What will your penalty be if you need to break the mortgage?
• Can you access equity later?
• Are you carrying expensive debt?
• Are you planning to invest?
• How quickly do you want to pay off your mortgage?
• Do you need flexibility?
• Does your mortgage support where you’re trying to go?

The Bottom Line

Your mortgage should be more than a rate.

It should be part of a financial plan.

As your income, equity, debt and goals change, it is worth reviewing whether your mortgage is still working for you.

You don’t need to wait until you’re ready to refinance to have that conversation.

Sometimes the best time to review your mortgage is simply when you start wondering whether there’s a better way to structure it.

If you’re an Alberta homeowner wondering whether refinancing makes sense, let’s look at the numbers and the bigger picture.

The goal isn’t to refinance just because you can.

It’s to make sure your mortgage is working for you.

 

P.S. Hope everyone had a great Stampede, has been able to get away for summer vacation and is looking forward to the fresh air fall brings.