Mortgages are typically provided for a time period upwards of a decade, maybe even two or three. A lot can change in that timeframe — better interest rates may become accessible, the need for major home renovation arises, you become interested in an investment property, and so on. That’s where a mortgage refinance becomes an optimal consideration for homeowners. Before we determine how I, Jodi Habel, a mortgage broker can assist you with financing your milestones, let’s take a closer look at what refinancing entails.
What is a Mortgage Refinance for Debt Consolidation?
If you have several monthly dues that are high-interest, it can easily become overwhelming. Why not switch them out with a low-interest alternative that isn’t as much of a strain on a monthly basis? A debt consolidation refinance can be the optimal option for you. Have credit card debt, student loans, or medical bills hanging over your head? You can opt for a cash-out refinance to redirect a certain amount from your home equity towards those high-interest debts. A few things to consider when refinancing your mortgage for debt consolidation are:
- A credit score of 620 will be required if you go for a conventional equity take out or refinance.
- You will need more than 20% of available home equity to qualify for an equity take out or refinance. The amount you can cash out is often dependent on the equity amount.
What is a Mortgage Refinance for Home Improvement and Investing?
A lot of homeowners decide to refinance for home improvement at some point down the line. You may want to change the roof on your house, renovate the basement that suffered through a water leak, make cosmetic changes to the home to increase its value, and so on. All of that requires financing that you may not have in your pocket right away. Instead of extending a hand towards your credit card, consider a cash-out refinance for home improvements. With this option, you refinance your mortgage for a larger sum than your current amount, you receive the difference in cash to spend as you wish. Cash-out refinancing is often a homeowner’s preferred renovation mortgage option since it doesn’t add on another separate payment to your monthly dues as would be the case if you take out a separate loan for the remodeling.
How Mortgage Refinance for Home Improvement and Investing Works
Let’s say you’ve decided to refinance for home improvement purposes with a cash-out, what can you expect? The money that you receive from the cash-out is tax-free, which is why many homeowners opt for this as a renovation mortgage option. Here are a few things you need to take into consideration for a cash-out mortgage refinance:
- Credit score — Typically, most lenders will require you to have a credit score higher than 620 to qualify for a cash-out mortgage refinance.
- Home equity — Depending on the type of mortgage you have and the requirements of your lender, you may need to have secured anywhere from 15-20% home equity before you can receive a cash-out.
- DTI (debt-to-income ratio) — Considering the fact that during a mortgage refinance you ask for an increase from your previous mortgage financing amount, you need to be able to prove that your income is sufficient enough to cover the added costs, despite the fact that the interest rate may be lower.
Which Mortgage Refinance is right for Debt Consolidation, Investing, or Renovations?
There are three types of refinancing that you can consider. Let’s briefly break them down and understand which is the best for what scenario.
- Rate-and-term — You get to change the interest rate, term, or both of your mortgage. For example, you can cut down a 30-year term in half or lower your interest rate, if eligible.
- Cash-out — As we discussed above, you can receive a tax-free sum based on your home equity and new mortgage terms. Cash-out refinancing is the preferred choice for investors, renovators, and those who want to consolidate debt.
- Cash-in — You pay a lump sum towards your mortgage debt and replace the mortgage with a lower balance, subtracting the sum you provided. This can help homeowners shorten their mortgage term and pay less interest and/or insurance.
Please contact me, Jodi Habel, for help to acquire financing. I provide complete mortgage services in Canada smoother than you can imagine. After all, it may be your first time refinancing a mortgage, but I have acquired relationships with major banks, credit unions, monoline, and alternative lenders through my 15 years of experience working in the industry.