What’s the Difference Between Mortgage Refinancing and Mortgage Renewal?

Mortgage loans

 

Canadian home mortgages are not usually paid off during the life of the term itself. One reason behind this is that the lenders tend to amortize the loan for a specific period such as between 15 to 30 years. When loaning from a Canadian bank, the longer allowable loan term is only ten years.

And because of this, homeowners who seek financing using traditional mortgaging channels will be applying for mortgage renewal at one point. However, there are some homeowners who prefer mortgage refinancing as opposed to renewal at the end of the term of their loan. With that said, it is important that you understand what the difference is between mortgage refinancing and mortgage renewal.

 

How Does Mortgage Refinancing and Mortgage Renewal Differ?

Mortgage renewal, as the name suggests, is quite straightforward. Basically, if you are unable to pay off your loan completely by the term ends, you can renew the deal without the previous rate being affected.

 

Mortgage refinancing is different. Refinancing means that you will be applying for a different kind of mortgage over the existing one. You don’t even have to wait until the term of your previous loan is over because you can apply for mortgage refinancing any time you want. Refinancing lets you study the various interest rates as well as amortization features that you can take advantage of.

When Should You Refinance Your Mortgage?

Mortgage refinancing can appeal to various homeowners. A good example, Is when you take out a loan where the interest rate is higher than your current rate. Of course, you will want to take advantage of the lower interest rate at this point. If your previous mortgage rate is at 5.5% and still has a few years left on your term, you may decide to apply for mortgage refinancing for the maximum length of your current term, especially if you are not planning on paying your loan early.

 

Applying for a low rate for the next ten years may mean that you will be paying for a penalty because of early payment. On the other hand, if you are able to generate more money in the next ten years, you can keep it in the bank to earn some interest.

 

Another reason for you to apply for mortgage refinancing is when you have several debts that have high-interest rates such as in the case of your credit card. When you refinance with a longer mortgage repayment, it will be easier to pay off your existing debts faster.

 

Apply now if you want mortgage refinancing or mortgage renewal with us.

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