A lot of homeowners are scared of the idea of refinancing their mortgage.
They already went through the process once, doing it again just seems like so much unnecessary hassle. It's important to understand though that refinancing can be a great way to save money and lower your interest payments, even if you have mediocre or below average credit.
And if your credit or income situation has improved since you originally got your mortgage, you could be throwing away money every month by not refinancing your mortgage.
It's easy to understand the urge to sit idly by, especially since refinancing your mortgage can be a difficult process with a spotty credit history, but that's no excuse.
Read on to learn 5 tips to make refinancing your mortgage much easier, even if your credit isn't spotless.
1. Make Sure Your Application is Attractive Before Your Start Refinancing Your Mortgage
Refinancing your mortgage doesn't have to be hard. You can make the process much easier and less stressful if you get your application as attractive as possible before you speak to your broker.
Make sure you have your important documents like paystubs, your prior year's tax documents, letters of employment, and any other supporting documentation ready to go.
Refinancing your mortgage is very similar to the process of acquiring a mortgage in the first place. Your broker is going to to need to see the same kind of supporting documentation to find you a good solution, and the more supporting documents you provide to explain why your application is actually a good one, the better.
2. Know What to Expect
Setting expectations is always important, your own and for the people around you. Before you begin the process of refinancing your mortgage, you should get your credit reports from Equifax and Transunion and have an understanding of your overall credit situation. Your credit is going to be one of the biggest factors in what kind of mortgage refinancing you will be able to access.
The steps required to refinance are often complex and interest rates are currently on the rise as well. The stress test and new mortgage rules introduced as of January 1st, 2018 are an indication that interest rates are going up in the near future, so if you're expecting an easy experience and low interest rates, you are likely to be disappointed.
Read More: What the stress test means for you
3. Equity in Your Property Is An Asset
Lenders want you to have some of your own skin in the game when it comes to refinancing your mortgage. No one is going to refinance your mortgage if you owe more than the house is worth.
Lenders are in the business of mitigating risk, so the more equity you have built up in your home, the better your application for refinancing will appear. Different lenders have different criteria for the amount of equity they want to see, with some requiring a minimum of 25% of the home's value invested, while others go as low as 5% to 10%.
Your broker will be able to match you up with a lender that is willing to work with your situation, but it's important to keep in mind that having more equity rather than less, will always be an asset in your favour.
4. Figure Our Your Break Even Point
Don't go out and refinance your mortgage just to save 0.2% on the interest rate you're paying. Before you refinance, you have to figure out your break even point and factor in the other costs involved in the process. There are fees, closing costs, and penalties associated with refinancing and that will make the math a little trickier. A good rule of thumb is to refinance only if you can save at least .5% on your rate, anything less and the math probably won't add up.
Do your research before hand and shop around a bit. Compare your current interest rate with the rates being offered at the moment (not that you're guaranteed to get those rates!) before you begin your refinance. A good broker will help you understand the numbers involved and whether or not the decision to refinance your mortgage is right for you.
5. Consider Government Insured Loans
Like a lot of other countries, Canada offers government insured loans and they typically require less money down and less equity on your home. This can make it easier for homeowners with poor credit to refinance their mortgage. On top of that, the Canada Mortgage and Housing Corporation has plenty of resources for borrowers like you to help you understand how an insured mortgage and refinancing in general, can be right for you.
With rising interest rates, now is the time to act. Refinancing your mortgage can seem like a daunting task, especially with poor credit, but it's important to realize that it can save you considerable amounts of money over the years. By following the above 5 tips and working towards improving your financial situation, you can refinance your mortgage and save yourself money today.
If you think you're ready to begin the process of refinancing your mortgage and want to speak to an expert to help you make the right decision, click the button below and fill out our 90 second application. The team at Ardent Mortgages Inc. would love to assist you with your refinance.