Mortgage refinancing – paying out an existing mortgage in full and taking out a new mortgage either with the same lender or a new lender – has never made more sense. Historic-low interest rates, which most experts insist are here to stay despite Bank of Canada governor Mark Carney’s repeated suggestions to the contrary, and fierce competition among lenders for a dwindling pool of borrowers have made for an opportune time for refinancing.
Those considering refinancing their homes are likely to receive one of two pieces of advice: wait a bit longer as the mortgage rates continue to fall; or now is the right time to go for a complete refinancing plan.
“We highly recommend refinance now than later, as the only way for the interest rates to go is up,” says Marcus Arkan, CEO and principal broker of Syndicate Mortgages Inc., in Toronto. “If the rates went any lower, that would be an indicator of an economic crisis.”
Calgary-based Laura Parsons, mortgage expert, Bank of Montreal, agrees. “Certainly, rates are near historic lows, but rates are bound to climb eventually,” she says. “Locking into a fixed rate can provide added peace of mind in the face of potential interest rate hikes.”
According to a BMO survey, Canadian homebuyers want payment certainty for as long as possible. The majority (65 per cent) are looking to lock in at a fixed rate to take advantage of low interest rates while they are available.
However, mortgage refinancing is a big financial decision and must only be taken after carefully considering pros and cons. Parsons says it’s important for homeowners to research all available options.
“There could be a better-suited mortgage available to fit your current or future needs,” she says. “For example, if you have had a variable-rate mortgage but are looking for payment certainty and rate protection, you may want to consider moving to a fixed rate.”
This also provides mortgage seekers an opportunity to review their current financial situation and look at repayment options accordingly.
“Choosing a shorter amortization can save thousands in interest over the life of the mortgage,” says Parsons.
And while they’re at it, borrowers might want to test how far they can stretch their budget. After all, interest rates are bound to eventually increase.
“Stress-test your mortgage at a higher rate,” says Parsons. “[Make] sure you will be able to afford your mortgage payments when interest rates rise.”
Finally, two recent factors need to be considered before making any decisions. Some homeowners may find the value of their home has depreciated as house prices in Canada continue to fall. As well, says Arkan, borrowers will now be “obliged to agree to the new terms that will be influenced by the recent mortgage policy changes.”