A guide to refinancing a mortgage

For many homeowners, there comes a time when refinancing a mortgage just makes sense now.

“They may want to for any number of reasons including consolidating debts, home repairs, making additions to their home, education or medical expenses, vehicles and other purchases,” says Eddie Belfon, a Butterfield senior manager.

“[A house is] usually [someone’s] biggest investment. Their equity is often used to fulfil their financial goals,” adds Jill Grinstead of Scotiabank.
And while some refinance their mortgage through their existing bank, others shop around.

It certainly makes sense to take a look at whether it is time to switch banks or mortgage providers to get additional services or products. Many banks now offer specialised packages and services that look at the overall financial circumstance of a client.

If a client has properties, businesses, family and other interests in several countries using a bank with a global reach could be a compelling reason to switch lenders when refinancing a mortgage explains HSBC relationship manager Lorraine White.

“This enables the customer to gain access to a wider range of products and services both locally and internationally,” says Lorraine.

To get refinancing approved, ensure paperwork is in order. For the most part, it is the same paperwork that was required for the initial mortgage.

Standard information includes an employment letter with proof of salary; assets and liabilities and an up-to-date valuation of the home. Property and life insurance data is also needed. If switching banks, a reference letter from the previous lender is needed.

If upgrading the property, some banks will ask homeowners for estimates from a contractor and the projected value of the home when it is completed.
Once the paperwork and due diligence is assessed, the bank will hopefully give the owner a commitment letter for a refinanced mortgage.

As a homeowner always have an initial face-to-face meeting with the lender to discuss what the loan is intended for and to review your financial position and any other needs.

There are unavoidable costs tied to refinancing a mortgage. These frequently include a legal fee, valuation fee and stamp duty on the transfer of document fee. Some banks also charge a penalty fee for early payout of the mortgage and a commitment fee if the mortgage application is withdrawn.

While fees vary, depending on the amount of the mortgage and the lender, the total costs generally range from three to four per cent of the finance amount.

“When all the costs are taken into account, it is not always in the client’s best interest to refinance the mortgage,” says Loraine, adding there are so many options available, there may be other products that might suit their needs better. This is why service-oriented lenders strongly encourage clients to come in for a personal meeting to review goals and their financial position.

Keep in mind
If a homeowner is looking to refinance through a new lender, the existing lender may offer special deals or rates to keep the client. So, if the homeowner has been a good client, there may be new options for interest rates available with his existing bank.

In refinancing, homeowners will typically get a 30-day break when they don’t have to make a payment, explains HSBC relationship manager Michelle Bodden.

“[This] can be a big help in offsetting the costs of refinancing the mortgage,” she says.