Hello everyone my name is Kevin Carlson I'm a mortgage broker here in Canada. Thank you so much
for joining me on my channel today to learn a little bit more about mortgage financing.
If this is not the first time you've looked at one of my videos in the last few weeks you may want
to consider subscribing to my channel. If you know somebody who is looking to purchase a very first
home please send them a link to my channel. The videos here are a great education guide to help
first-time homebuyers understand mortgages before they even get pre-approved. If you already own a
home and have a mortgage on it, there are typically three different types of mortgages that people apply for.
If their current mortgage is coming to the end of its term then those people actually
have a couple of different choices. A mortgage renewal is when a client would just renew their
mortgage with the current bank and take whatever interest rate and term that they're being offered.
Clients that are more shrewd than that may want to move their mortgage to a different bank to get
a better interest rate. If their current lender is not offering them quite as good an interest
rate as what's available through somebody like me as a mortgage broker, then they may want to
consider doing what's called a mortgage transfer or a switch those terms are the same thing.
The third type of mortgage that a current homeowner might consider is what's called a refinance.
A mortgage refinance is when a homeowner takes out a mortgage for more than they currently owe on their
mortgage. This in effect gives them access to cash equity within their home. The mortgage amount is
increased and then the cash that's left over gets sent to the client. Mortgage refinancing is quite
often done at the mortgage renewal time but not always. Sometimes it makes sense to do a mortgage
refinance sooner and potentially pay a little bit a penalty, depending on your situation. If you're looking
to consolidate debt and you're paying much higher interest on credit cards and lines of
credit and other loans a little bit of penalty on your current mortgage is not really a big deal in
the face of those higher interest costs. Let's just illustrate this with a few easy numbers. Let's say
I have a client that has a house that is valued at $400,000.00, and they have a current mortgage on it of
about $200,000.00. Under a standard mortgage refinance that client is allowed to take a maximum mortgage
amount of 80% of that current value of $400,000.00, so that gives a maximum refinanced
new mortgage amount of $320,000.00. After the mortgage is paid out of $200,000.00,
that gives them access to $120,000.00 of cash equity.
These funds can be used for practically anything. Here's just an example of some of the
things that clients choose to use those funds for. Debt consolidation to pay out higher interest
debt on things like lines of credit and credit cards. Purchase of RRSP's, investments or rental property.
Payout of amounts owing to Revenue Canada for income tax and other tax purposes.
Home renovations and improvements. Startup of a new business, fund a post-secondary education for their children.
Because mortgages are stretched out over so many years, these extra funds do not increase
mortgage payments significantly. In fact in the case of a debt consolidation, people can save
thousands of dollars a year on interest costs over credit cards and lines of credit.
If the client for whatever reason needs the mortgage payments to be a little bit lower then the amortization can be
reset out to a maximum of 30 years. Whenever possible I try to encourage clients to keep the
amortization on trend with what they had before. So, if they purchased the house 5 years ago with a
25 year amortization and they're at 20 years today, if their doing a refinance, I try to do it for at least 20 years if
possible or even shorter. If the mortgage refinance is not just a standard refinance but it's due to a
marital breakup, then the rules are a little bit different. Mortgage refinancing in the event of a
divorce to pay out the other spouse is not just the 80 percent it's quite a bit higher it's up
to 95% of the homes current value. I did a previous video on mortgage financing around
marital separation and divorce, so I will link to it in the description below. Most of the time when
clients approached me about mortgage refinancing, they have a good idea how much money they need
and they pretty much know that they need the money right away. Sometimes though that is not
quite the case. If somebody is looking to take out extra funds to do a refinance on their house and
they don't need the funds for months or perhaps years down the road, perhaps a standard mortgage
refinance is really not the best idea. The interest costs for those extra funds start from day one so
the carrying costs on that money is significant. Savings accounts aren't gonna make up for the
extra interest cost on a mortgage when you've got say 50 or 100 thousand dollars sitting
there that you're not quite ready to use yet. In a situation like that I often encourage clients
to look at doing a collateral mortgage that has multiple borrowing components. This allows the
client to get a mortgage with a secured line of credit attached, so the extra equity would be set
up as the secured line of credit but as a 0 balance. The client has no interest costs as long
as it's a zero balance and then they can have access to the equity pretty much whenever they want.
The downside to that is that the interest rate is a little bit higher on the secured line of credit
rather than in the mortgage. But if they don't need the funds right away, it certainly makes
sense to do something like that. These collateral mortgage products with multiple components are a
little bit complicated to go over here. I will be doing a future video on collateralized mortgages
like the Scotiabank STEP mortgage in a future video. Once it's complete I will link to it in
the description below. If a client is looking to make some home improvements to their house and
the value isn't quite where it needs to be to be able to give them access to the funds, well
it might be later on after the renovations are completed. I did another video previously called
Purchase Plus Improvements and that program is very similar to the refinance with improvements.
I go over refinance with improvements in that video pretty extensively so I will link in the
description below, go have a look at it. That's about it for mortgage refinancing and so if you
have any questions about anything financial mortgage related please feel free to comment
below, I try to answer comments right away. If you live in Canada and you're looking for
some mortgage financing and you'd like to work with me, please contact me through my website I would
be happy to work with you. Once again I also consider subscribing to my channel to be
notified when additional videos come out. Thank you again for your time and have a great day.