6 Tips to Help You Refinance Your Mortgage for a Better Rate

If you’re looking to refinance your mortgage, you can look for a better rate and ultimately save quite a bit of money. With Canadian mortgage rates being so low, it’s tempting for homeowners to refinance their mortgage in hopes of lower rates. Experts are saying that if you’re paying over 3% for a fixed rate, you can do better. Even with rates that are 0.75% less than the current rate, refinancing for better rates could ultimately save you thousands over the mortgage term.

When you’re dealing with large amounts of money involved in owning a home, even the smallest rate difference can save you a lot. We have put together the tips that can help you save big if you choose to refinance your mortgage to take advantage of the lowest rates.

Improve Credit


You want to make sure your credit score is strong before looking to remortgage your property. Credit scores less than 600 will likely not get your qualified for a lower rate with alternative lending institutions. Before you even begin the process, make sure you know what your credit score is. If it’s currently not great, there are a few steps you can take before applying to refinance your mortgage.

It doesn’t take long to get your credit score up. You may wish to apply for a new credit card while paying your other cards down. The rule of thumb is to not have credit cards paid down to less than 30% at all times. Pay all bills on time as well and you can quickly increase your score to over 630 and onwards. This will give you more leverage when seeking out the lowest mortgage rates.

Prove Your Value as a Borrower


With so much economic uncertainty, lenders may be extra cautious about who they’re lend to. With this in mind, you want to prove how reliable you are. You need to prove you have stable income and employment.

If you’re unemployed, you’ll want to put together evidence that proves you had consistent income before Covid-19 lockdowns and restrictions. While the Canadian Mortgage and Housing Corporation (CMHC) have imposed restrictions for new high-ratio mortgages, this doesn’t apply to those refinancing.

Know What You’re Getting Into


As a borrower, you should carefully read the fine print and not just settle on the first lowest interest rate offered to you. The interest rates are just part to the contract you’re signing up for.

For example, HSBC has a 1.99% fixed rate. This may sound great, but you may not qualify for these rates and if you do, they may come with limiting restrictions. This can lead to impossible monthly payments you won’t be able to manage.

Shop around and get to know the offers out there and compare. Understand what you’re agreeing to. Some rates are designed for high-ratio borrowers who will need default mortgage insurance. You may be asked to sign a term length that doesn’t work for you. On top of that, there may be very high prepayment penalties, making it impossible for you to pay off your home more quickly. Basically, don’t assume the deal you’re getting will be like your last one. Pay attention to all the details and work with qualified brokers who can assist you in comparing rates.

Know How Much Your Closing Costs Will Be


Anyone looking to refinance their mortgage is doing it so save money. This is why it’s important to understand what the closing costs will be. When you refinance, there will be fees involved so you want to figure out if you’ll come out on top financially even with the fees. Generally, you can expect to pay a $70 registration fee along with legal fees that can be anywhere from $700 – $1,500. It depends on how complex the contract is and the lender you’re using.

To switch lenders, you’ll likely have to pay a discharge fee of up to $500. This will heavily depend on the lender and what province you’re living in. The largest cost when you’re refinancing your mortgage is the prepayment penalty. When you break your term early and you have a fixed-rate or closed mortgage, these fees may be too high to rationalize the remortgage.

If you have a variable rate mortgage, you can expect a penalty that is equal to three months of interest. If you have a fixed rate closed mortgage, contact your lender and ask for a payout statement to find out how much your prepayment penalties will be. The penalties you’ll have to pay will depend largely on the amount your borrowed and how much time is left in the mortgage term. It could cost your thousands of dollars so it’s essential that you check out this information before committing to refinancing.

The Process is Fast so Be Ready


If you’ve decided to seek out a lower mortgage rate, know that things are unstable and uncertain, largely in part to Covid-19. With this in mind, low rates don’t last forever. The sooner you can gather information and talk to a broker, the better chance you have of taking advantage of this particular moment in time where rates are so low. To prepare yourself, you’ll want to get certain documentation in order. This includes:

  • Your up-to-date credit score.
  • Recent mortgage statement from your lender.
  • Documentation to prove you are employed
    • Current pay stubs
    • Letter of employment
    • Bank statements
  • Tax documents
  • Notice of assessment 
  • Estimate of your property’s current value
  • Copy of a recent property tax statement or your Final Property Tax Bill

Be Ready to Leave Your Current Lender


Statistics have found that you don’t benefit from staying with the same lender throughout the duration of your mortgage. Mortgage lenders know that you don’t want to shop around for the best rates and may take advantage of that fact. A Canadian agency, The Office of the Superintendent of Financial Institutions releases stats regarding how lenders present returning customers with rates that are higher than other rates from different lenders. They may offer rates up to 0.09% more, which doesn’t seem like a lot but it can save you quite a bit over a 5 year term.

These are our tips to consider when you’re looking to refinance your mortgage and get in on a better rate. If you’re organized, you can be seen in the best light and have multiple lenders competing for your business. It’s a good time to consider refinancing due to the low mortgage rates at the moment. Life moves quickly though so you’ll want to move with the times and get everything in order to take advantage and potentially save thousands of dollars.

We can help connect you with the top mortgage refinancing providers in Canada. Pre-apply for mortgage refinancing here!

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Loraine Couturier

Loraine is from Canada but travels around the world working as a freelance writer.

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