Your name:

Phone number you can be reached now:
- -
Your comment:
Industry Reports
Tools and Calculators
Industry Directory

FREE NewsletterGet the latest in mortgage news, helpful tips and advice, low rate alerts and special offers.

How refinancing can save you money.
08 July 2009

Are you locked into a high mortgage rate? Are your debts starting to overwhelm you? Do you need to fund an important purchase? If you have said yes to any of these questions, then refinancing might be the solution for you.


With mortgage rates at historical lows, many homeowners are taking a second look at their existing mortgage and wondering exactly why they should keep paying the high interest rates of a couple of years ago. What seemed like a good deal then might be costing them thousands of dollars in added interest compared to the deals on offer today.


Upgrade your rates and terms


By refinancing your mortgage, you can sign onto lower interest rates, change from fixed to variable rates, extend the amortization period and make many other small changes to save you money in the short and long run.


Essentially, when you refinance, you are paying out your existing mortgage early and taking out a new mortgage with new (and better) terms. If rates are significantly lower than those you locked into, your monthly payment can be dramatically reduced, as can the amount of interest accumulating on your principal.


Looking at the numbers


A rough scenario to illustrate the point: let’s say that four years ago, you locked into a five-year, fixed rate, $200,000 mortgage at 6.5%. Your current monthly payments, amortized over 25 years, would be $1350.41.


You have the option of refinancing at today’s rate of 4.7%; this would give you a savings of 1.8% interest for the next year, until your old mortgage term would have lapsed.


After four years of payments, your outstanding mortgage would be $185.404.04. If you stayed with your old, higher rate, at the end of next year, your balance would be $181,124.33.


Lower payments and reduced interest


Now if you opt for the refinance rate, your balance at the end of next year would be $180,097.63. That’s an interest savings of $1026.70 – but that’s not all. With the lower interest rate, your monthly payments would also go down to $1158.92. That puts another $191.49 in your pocket each month, or nearly $2300 at the end of the year.


So already, in just one year, you’ve saved more than $3300! Furthermore, if rates go up in that year, you’ll save even more by having locked in at a lower rate, rather than being forced to renew your mortgage at the higher rates.


Don’t forget the penalties


Now there are penalties that go with breaking your mortgage agreement early, and since each lender calculates these penalties differently, it’s important to sit down with a mortgage specialist to determine exactly what they will be, and whether now is the right time for you to refinance your mortgage.


A multi-purpose tool


But refinancing is about more than just getting a better rate on your mortgage. Many Canadians are choosing to refinance to draw on their home equity to settle debts, pay for a child’s education, buy investments, and more.


Using equity to come out ahead


According to the Canadian Association of Accredited Mortgage Professionals, most Canadian homeowners have a fair bit of equity on their homes: an average of 72% of their home’s value.


About 15% of them are choosing to take some of that equity out, an average of $42,000 each, and using it to pay other high-interest loans such as credit cards and car loans; to renovate their homes to increase its value (and their own equity!); to invest the money, which can have tax benefits and accrue more interest than the mortgage costs; or to make important purchases that they could not otherwise afford.


Because mortgages are secured loans, they are one of the cheapest ways to borrow money out there, and drawing out equity can be the most financially sound way to make those big purchases.


Check out our Refinancing Guide to find out more about the different ways refinancing can help you and your family meet your personal and financial goals, or call our mortgage specialists today at 1-866-RATE-708 to discuss how refinancing can save you money.