As a St Thomas mortgage broker, we often get asked “when is the best time to refinance my mortgage?” Like many questions, there is not always an easy answer. The answer will depend on many factors that are unique to your situation.
Are you up for renewal?
Everything being equal the best time to refinance your mortgage is when your current mortgage comes up for renewal. By refinancing at this time, you will avoid any pre-payment penalties.
What is the penalty?
If your mortgage isn’t up for renewal one of the most important variables is going to be how much of a penalty you will have to pay in order to break your mortgage. This can be very different depending on your mortgage agreement and if you have a fixed or variable rate mortgage.
Can you pay off other debt?
Once we have estimated this cost then we can compare it to the savings that you would realize by paying off higher-interest debt, the amount of payment savings or the value of the additional funds will provide for your needs, whatever they may be. At the end of the day, it will ultimately be your decision whether to proceed with the refinance at this time or wait until your mortgage is up for renewal.
What are the trends?
Another factor to consider is whether mortgage rates are trending upwards or downwards. If rates are trending upwards, by renewing now you might be able to secure a lower rate now, than if you wait until a later date. If rates are trending downwards then the opposite could be true. While we all wish we could predict how rates will change in the future, we can watch these trends for some idea.
In today’s environment of increasing interest rates, many people are refinancing early and incurring a penalty just for the sole purpose of locking in today’s rate in fear of having to renew at a much higher rate down the road at renewal time.
A hybrid option perhaps?
Another option is to leave the current mortgage as is and do a partial consolidation through a second mortgage, either a secured line of credit or a term mortgage with set payments. This will provide you with the funds required to pay off other debts, lowering interest rates and reducing payments while not having to incur a penalty for paying off your existing mortgage. The plan will be to have this second mortgage open, or having a maturity date coinciding with the renewal date of your existing mortgage. When your existing mortgage is up for renewal we can combine the second mortgage with your existing first mortgage into a new first mortgage.
If you’re unsure whether now is a good time to refinance, contact your St. Thomas mortgage broker for a free mortgage consultation to help you identify your options.