Owner of a cottage for 6 years, Marc wants to take the next step, welcoming future tenants to increase his monthly income. To get interest in her cottage, she will have to do renovations.
These unexpected expenses seem to want to slow down her project, but has she thought about mortgage refinancing?
How does it work?
Refinancing your mortgage simply means that you re-borrow a portion of the value of your home and the principal already repaid on your mortgage, up to 80% of the equity in your home.
Here is an example:
- Current market value of your home: $400,000
- 80% of this amount: $320,000
- What you have left to pay off on your mortgage: $150,000
- Equity available: $170,000
Three good reasons to refinance your mortgage
Finance your renos
Renovations are the main reason for a mortgage refinancing. The work well done will both enrich Isabelle's quality of life and increase the value of her home. The important thing is to protect your investment (your home) and add value to it. You will therefore benefit from considering, in order: maintenance and repair renovations (roof, cracks), improvement (windows, insulation) and lifestyle (kitchen, bathroom).
Consolidate your debts
Mortgage refinancing is also, for many, an opportunity to consolidate certain debts, in the same place, and this, by taking advantage of much lower interest rates.
Consider in particular the interest rates of credit cards or personal loans which are generally much higher than those of mortgages. It then becomes advantageous to collect these debts at a lower rate in order to facilitate repayment.
For example, you pay an amount of $1,000 per month to pay off your credit card on which there is a debt of $20,000 (20% interest), in addition to a personal loan of $5,000 (8% interest) that costs you $101 per month. By choosing to consolidate your debt from $25,000 to 3% interest repayable over 25 years, you will no longer have to pay $1101 per month, but rather $118 per month. A clear difference that could weigh heavily in the balance.
Acquire new real estate
Many homeowners take advantage of the increased value on their building or the equity available on their main home to finance the purchase of another property. Whether it is a plot of land, a rental condo, a cottage, a duplex, a triplex or any other real estate investment.
Whatever your project, remember that mortgage refinancing should only serve you to increase your quality of life or create value on your real estate in the short and long term.