In this post we will learn talk about the basics of what is the difference between a mortgage refinance vs mortgage renewal.There are different reasons why you would perform a mortgage refinance of your property. Keep in mind that refinancing your mortgage is different than a mortgage renewal.
Before we talk about refinancing, let’s quickly explain the difference between a mortgage refinance and a mortgage renewal.
Mortgage renewals are for the most part a simple process. Every mortgage comes up for renewal at a set date decided when you first got your mortgage. Normally the mortgagee (the lender) would reach out to you a few months before your renewal date and offer you a new mortgage term, which would include a new interest rate. You will have the chance to negotiate with the lender for better terms or you can ask your mortgage broker / agent to shop around to different lenders to see if any of them can offer you a better interest rate and term.
In a mortgage renewal you cannot change the mortgage balance. Whatever is the balance at the end of the term is the amount that is renewed with in the new term. Some lenders, when you switch over to them from your existing lender, will allow you to absorb some of the costs of transferring over to them in the new mortgage. But for the most part it is the same mortgage balance that is renewed.
With a mortgage refinance you have more flexibility to take advantage of the equity build-up on your property to take out extra money when the renewal date arrives or at any time during the mortgage term. Keep in mind that if you decide to refinance your mortgage in the middle of its contractual term there will most likely be a penalty involved, but people who need to refinance in the middle of their mortgage contracts may not be as worried about penalties since they have good and urgent reasons to perform a refinance. Such as debt consolidation.
In this scenario the first thing that happens is that you consult with your mortgage professional. You fill out their mortgage application and provide a detailed history about your last few years of finances and possible issues that have come up that now you want to refinance. The mortgage broker or agent needs to completely and clearly understand your case and circumstances to be able to properly advise you on next steps.
Next is the credit checks followed by the full credit analysis of the mortgage application and credit report.
An accurate estimation of the property value is either provided by you the mortgagor (property owner) and or the mortgage professional. Eventually a full appraisal of the property must be made to get a professional valuation of the real estate being refinanced. This is always the condition of the lender doing the refinance. The appraisal can be done during the mortgage broker’s application analysis or after the application has been submitted to the lender for review and they ask for an appraisal to be done.
All banks and other ‘A’ lenders can only refinance a residential property up to a maximum of 80% of the appraised property value. If you need more funds or if your application is declined by the ‘A’ lenders, the next group of lenders that can consider a higher loan amount would be private lenders. They take on more risk by giving you more than 80% of the property value. For that risk a private lender would charge you a higher interest rate and a lender fee. Since a private lender normally does not pay a finder’s fee (commission) to the submitting broker / agent, there would also be a broker fee from the mortgage brokerage.
A few examples you might consider a mortgage refinance
- Extra funds to help towards purchasing a second property, such as a vacation property or investment property
- Consolidating high interest rate credit cards and other loans into one lower interest rate monthly payment
- Major renovations
- Helping a family member in need of immediate financial support
This was a brief post to give the reader an idea of what is the difference between a mortgage refinance vs a mortgage renewal. To learn more about this subject and to ask any questions that you have please contact Trusterra Mortgage for free consultation. We are here to help you with all your real estate financing needs.