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Thinking about refinancing your mortgage this spring?

Are you thinking about refinancing your mortgage this spring? Whether you’re planning to  renovate, consolidate higher interest rate debt, or increase your mortgage amount for another big purchase, knowing these six things can help you make the best mortgage refinance decision for your situation.

Your Home Equity

If you’re hoping to increase the mortgage on your home, save time, money, and frustration by estimating your equity before applying to refinance. Equity is the difference between the appraised home value and your outstanding mortgage amount. Estimate the appraised value by looking at recent sold figures of comparable homes in your area. Get your current mortgage amount from your lender. As of February 15, 2016, qualified Canadian homeowners may borrow up to 80 percent of the appraised home value when refinancing.

Your Debt Servicing Ratios

Once you know your equity, you can figure out if you have enough income to carry the new, higher mortgage payment that will result from your mortgage increase. Your gross debt service ratio (GDS) compares total housing expenses (including mortgage payments, property taxes, condo fees, and heating) to your gross monthly household income.

Your total debt service ratio (TDS) compares all your GDS costs plus all other debt payments to your gross household income. As of February 15, 2016, the maximum allowable GDS is 39 percent and the maximum allowable TDS is 44 percent [Same source as above]. 

When Your Current Mortgage Matures

If you refinance when your mortgage matures, you won’t pay a prepayment penalty, and you can go to a competitor if they give you a better deal.If your mortgage isn’t close to maturity, you’ll pay a penalty if you’re going to a competitor. Ask your lender if they’ll waive the penalty if you stay with them for your refinance.

Your Credit Score

Lenders review credit scores and credit reports for refinancing applications to assess the risk of lending you more money. They may also use this information to determine your interest rate. Check your credit score and credit report before refinancing to ensure the information is accurate so you get the best refinancing terms possible. Visit the Financial Consumer Agency of Canada website to learn how to order your credit information for free.

Competitors' Rates

Before agreeing to refinance your mortgage with your current lender, shop around and ask for the best rates from other banks and credit unions. Even if you end up staying with your existing lender, you’ll know if the rate they’ve offered you is competitive.

Refinance Fees

Refinancing a mortgage often requires appraisal fees and legal fees. An appraiser may provide a current market value of your home, and a lawyer prepares legal documents to register the new mortgage. Ask your lender whether you’ll be charged these (or any other) fees.

Refinancing when interest rates are low can be a good way to finance a variety of large expenses. Talk to your Meridian financial advisor today about your refinance options at today’s low mortgage rates