Ask Nereda First, Get the Answer - Refinancing during the coronavirus pandemic

Refinancing is done to allow a borrower to obtain a better interest term and rate. The first loan is paid off, allowing the second loan to be created, instead of simply making a new mortgage and throwing out the original mortgage.

Prior to the interest rate cuts just over three weeks ago, fixed-rate mortgages offered lower rates then the variable rate. 5-year fixed rates have been up and down in the last few weeks, but as of today our lowest rate advertised for insured 5-year fixed rates are down 20 bps, from 2.79% to 2.59%, while variable rates are as low as 2.25%.

Fixed-rates could drift lower but refinancing now can make sense for people who want to lower rates or payments, consolidate debt, add a home equity line of credit (HELOC), or take out equity for a valid purpose. It is my job to crunch the numbers to see if it will save you money. I will be honest and break down every cost and the savings, then the decision is yours. We will check how much you can save over your existing term by moving to a lower rate, see how much you can save by rolling in debt, and even show you how to apply a portion of that savings to your mortgage to help pay your mortgage down faster after this uncertain time is over. I subtract any early breakage penalties (which are generally 3 months interest on variable rates, and the greater of 3 months interest or interest rate differential on fixed rate mortgages), subtract roughly $1,000 for closing costs and add back any cash rebates from the lender the might be available. Do you have less then 3 years left in your current term? I have a lender that will work with you to secure a line of credit now, at a great rate with the option to move your mortgage to them at the end of the term. They even cover the closing costs and appraisal fees.

If you decide to go ahead the process is very much like qualifying for your first mortgage, and lenders are giving first priority to new purchases. We will have to verify your employment, which for millions of Canadians is precarious because of Covid-19, however, I am here to help you every step of the way. If you want a prime mortgage at good rates you'll need a 680-720 credit score minimum, provable income in an industry that's not at risk, a reasonable debt ratio (your monthly obligations divided by gross monthly income must be less than 40-44%) at least 20% equity in your home plus enough equity for any debt you want to roll in or cash you want to take out.

Although some lenders have lowered interest rates on credit cards, a secure line of credit also known as a HELOC offers drastically lower rates — making them a useful source of funds if used responsibly. One common mistake we make with the HELOC is we use them to overspend. It is my job to teach you how to use it to not only save you money but also provide you with security in uncertain times. Refinancing can help you achieve your financial goals and I help you understand the process.

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