September 9, 2014 nkad3

The Refinance Ceiling – Not Enough?

When it comes to mortgage broker Brampton and mortgage broker Mississauga, Canadian mortgage Services has many clients that have similar circumstances and questions pertaining to refinancing their mortgages.

Refinancing your existing mortgage is a common solution for many home owners to consolidate debt, free up some cash flow, or even just getting a better rate. As long as you maintain good credit, a fairly reasonable debt load and stable income, you can refinance your existing mortgage for almost any reason. According to current regulations however, the maximum refinancing limit is 80% to value of your home. This means that you can never really access the full equity in your home ( via traditional lenders) and no matter what your reasons are for needing to refinance, you cannot exceed this set value. In most cases, home owners find that the 80% cap is not sufficient for them to satisfy their financing needs. As disappointing as this may be for homeowners in general, it is perhaps the most frustrating for new home owners.

When it comes to new home owners, specifically those who put a down payment of less than 20% at the time of their purchase, refinancing is almost a lost cause. Of course, this is mainly problematic for the first few years. Take the following scenario:

  • You purchased a home a year ago with a 5% down payment and you want a better rate today to save some money.
  • You are not interested in taking out any money, and your existing mortgage allows you to repay the mortgage with minimal penalties
  • You still have great income & credit

In the above scenario, chances are you will not be able to refinance your existing mortgage, even if you are not taking out any extra money and because you are seeking a lower interest rate. This is simply because you had purchased your home a year ago with a 5% down payment, which means you had acquired a loan of 95% to the value of your home. Since the refinancing regulations have capped the refinancing limit at 80%, you would be short on the amount of money you need to payout your existing mortgagee. This is because your home probably hasn’t appreciated to a value where your 95% loan (a year ago) represents 80% of the value today. Since these rules are firm, you will have no choice but to stay put! Unfortunately, there’s nothing you can do until the value of your home appreciate and/or you pay down your principle to at least 80%. This is true for at least until the regulations change again, and if this happens, mostly likely they will become more stringent.

If you have any questions or would like to learn more about what your refinancing options are, please feel free to call us today! 905.455.5005. We are your local experts for Mortgage broker Brampton and mortgage broker Mississauga.



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