Mortgage refinancing is a very popular trend throughout the year and is not restricted to the seasonal high’s and lows experienced on the purchase financing side of things. Unlike purchase financing, it is important to note that mortgage refinancing is usually done for a variety of different reasons including debt consolidation, renovations, switching mortgage lenders, etc.
With that said, we must remember a mortgage is a type of loan that is given in exchange for available equity in a property. The loan itself, is secured by the dollar value of the property which is typically determined by an independent appraisal. For mortgage refinancing to be possible, the home owner must have some sort of equity available to “exchange” for this loan request. If there is no equity left in the home for whatever reason, then not lender would be able to offer the mortgage.
Think of a mortgage loan without equity, as an unsecured loan similar to credit cards or personal loans. The risk involved in advancing these types of loans are much greater to the lenders and the advanceable limits are also much less due to the nature of the risk.
It is also important to note that, most mortgage lenders require borrowers to retain some “skin in the game”, which means that the home owners hold a certain amount of equity for themselves to encourage mortgage payments be paid on time and/or to cover any potentials losses if the mortgage were to go into default. This also means that even if you have equity in the home, the lenders would not consider all of it “as available equity to trade”. In other words, mortgage refinancing can only be completed as long as there is available equity in the home, not including the total equity.
Having said that, there are ways that you can position yourself to complete mortgage refinancing such as by increasing the equity in your home by paying down the principal through regular mortgage payments or by waiting for your home to appreciate through the passage of time.
If you would like to learn more about mortgage refinancing or have more questions on this matter, please feel free to give us a call – 905-455-5005