Mortgage application documents

How Does Mortgage Refinancing Work?

Are you looking to refinance your mortgage? Do you think it will be a good option for you? Find out answers to all those questions in the section below:

How can your house act as a financing tool?

A wacky idea? Not quite. If you have had a property for a few years and have lots of plans in mind, your mortgage could help you finally make it happen! The mortgage refinancing is a solution, used intelligently, can allow you to enjoy what life has to offer.

You are probably wondering how a mortgage debt can turn into an investment. Well, the idea behind this strategy comes from the principle of leverage. Like a mechanical lever which, to lift a very heavy load, acts as an effort amplifier in movement and speed, the financial lever produces the same effect. It consists of borrowing a sum to invest and improve its financial situation.

Financial institutions allow you to use the amount corresponding to part of the “net value” or “equity” of your home, which is the difference between 80% of the current value of your property and the balance payable on the mortgage, to invest in your projects.

How does mortgage refinancing work?

When you refinance your mortgage, you are basically borrowing part of the total value of your house and the repayments that you have already made on the mortgage, which is up to 80 percent of the total value of your house.  However, the final price decided by your financial institution depends upon your financial situation.

An example:

  • The current market value of your home: $500,000
  • 80% of this amount: $400,000
  • What you have to repay on your mortgage: $200,000
  • Equity available: $200,000

The mortgage line of credit

Consult a broker to discuss the mortgage products that best suit your financial situation and repayment capacity. There are several, including the mortgage line of credit.

It is a flexible mortgage product, which gives you access to the money you need at a given point of time. You use it whenever you want without having to reapply for a loan, and you only pay interest on the amount used. The maximum credit limit is 65% of the purchase value of the home. Please note that this is the maximum amount you will be entitled to over the years to pay off your mortgage because the credit available on a mortgage line of credit is adjusted according to the balance. As you pay off your loan, you will see a rise in your credit limit.

How to get my mortgage refinanced for sure?

To get your mortgage refinancing for sure, you have to prepare well. A mortgage broker can help you with this process. You will need to prove to your lending financial institution that you can repay the amount requested when refinancing. To do this, mortgage lenders will ask you for specific details related to your finances to calculate your living expenses and monthly housing. Moreover, they will also calculate the total amount of debts you have to pay. This information simply allows them to determine your ability to pay.

Here is what is taken into account:

  • Your household income (before tax)
  • Household debts
  • The amount you wish to borrow
  • Your file and your credit rating
  • The market value and condition (to assess) of your property.

If you still have any doubts, clear it with your mortgage broker. PIF Lending offers precise assistance to those facing troubles with the process of mortgage refinancing.

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