It can be beneficial to revise or replace the terms of your existing mortgage. This is called refinancing. Doing so can help you secure more favourable conditions and improve your finances.
Refinancing can help you achieve numerous goals, including:
- lowering your interest rate
- reducing your monthly payments
- consolidating your debts
- releasing equity for renovations or other investments
While there are many benefits to refinancing, depending on your specific circumstances, it might not always be the right choice. You can explore your refinancing options to make an informed decision.
To help you choose, it is important to ask the right questions. This can provide you with information to make the best decision and avoid costly mistakes.
These decisions can have a significant impact on your finances, given the substantial financial commitment of a mortgage. A mortgage broker can help you in this process and offer meaningful advice and guidance, reducing your stress.
Our goal is to empower you to make informed financial choices. We’ll provide a list of important questions you must ask your mortgage broker before refinancing in Canada, and explore why each question is important, the situations where they are critical, and the types of responses you should anticipate.
But first, let's discuss the advantages of working with a mortgage broker.
What Are the Benefits of Working with a Mortgage Broker Over a Bank?
Refinancing your mortgage might seem confusing at first, but it can be straightforward with the right information and support. Choosing the right strategy can also save money and improve your financial future.
You can work with a mortgage broker or go directly to the bank. There are some advantages to dealing with banks directly, but also some drawbacks. For instance, bankers are trained for the job but aren’t required to hold specific certifications. Banks can also only offer their own products, which limits your mortgage options.
Comparatively, mortgage brokers are industry professionals who can shop around to find the best offers from various loan providers. They also can provide additional services not typically offered by banks.
Working with a mortgage broker is an excellent way to have expert support when refinancing. Here are the three main benefits:
- They’ll offer personalized advice rather than generic and conventional solutions.
- They have access to more lenders, providing you with a wider range of mortgage products and potentially better rates than those offered by a single bank.
- They offer expertise and in-depth market knowledge, meaning they can negotiate the most favourable terms on your behalf.
In addition to these benefits, you can build a personal relationship with your broker, where you explain your goals, concerns, and any knowledge gaps about mortgages and refinancing.
What’s the best way to build that relationship? Through questions!
Questions You Should Ask Your Mortgage Broker Before You Start
Before you get into the details of refinancing, ask your broker a few questions about them. For example:- How long have you been in business?
- Do you plan to complete the entire file, or will it be passed along to someone else?
- Are you part of a national franchise affiliated with a bank or independent?
The answers your broker provides will give you valuable insights into their experience and approach to working with clients. It is important to choose a broker with extensive mortgage market experience. You can also search for reviews and feedback from other clients to verify their expertise and effectiveness.
Knowing who handles your file is important for communication and efficiency. Aim to find a broker who offers continuity in the process, handling your file from start to finish.
Understanding the broker's professional affiliations helps you assess their range of options and independence in finding the best deal. Seek a broker with no vested interest in promoting a particular product. This way, they are more likely to offer unbiased advice about what’s best for you.
Once you have learned about your broker’s background and approach, you can ask detailed questions about your refinancing options and associated terms.
1. Will Refinancing Benefit My Current Situation?
Why ask the question: Refinancing is not a blanket solution with guaranteed benefits for everyone. You should understand whether refinancing benefits you and your financial situation. Your goals may be different from those of other customers. An effective mortgage broker should anticipate this question and offer customized advice tailored to your individual needs.
When it’s crucial: This question is critical at the start of the process, as determining whether refinancing suits you is central to the entire process.
What to look for: Get an estimate about how refinancing may affect your financial outlook. Your broker should provide an analysis of the tangible financial benefits refinancing can offer, including a timeline of expected savings. Request detailed projections for:
- your monthly payments
- the interest rate
- your overall loan term
2. What Are the Total Costs Involved in Refinancing?
Why ask the question: Refinancing has several associated costs you need to consider. These costs can accumulate and affect your overall savings.
When it’s crucial: Ask your mortgage broker upfront about the total refinancing costs. They can provide an overview of what to expect to avoid costly surprises later.
This is an important question as you compare lenders, as each may structure their refinancing costs differently. Your mortgage broker can clarify these fee structures to help you compare each offer effectively.
What to Look For: Request a detailed breakdown from your mortgage broker of all potential fees, including:
- application fees
- appraisal fees
- break costs
- early repayment penalties
- legal fees
- other potential hidden costs
Mortgage brokers simplify the terms and conditions associated with your mortgage. They should be transparent about the total costs to help you choose the most appropriate option.
3. How Will Refinancing Affect My Credit Score?
Why ask the question: Your credit score plays a key role in accessing future loans. Since refinancing involves credit checks and opening a new loan, it affects your credit score. Ensure you understand this impact before you start.
When it’s crucial: This question is important to ask if you’re considering other loans in the near future. For example, you may wish to lease a new car or take a business loan as an investment.
Refinancing your mortgage can negatively impact your credit score in the immediate future, so ensure you consider whether this is feasible with your other financial goals as you make your decisions.
What to look for: Your mortgage broker will help you explore the impact of hard credit inquiries and the establishment of a new loan account. They’ll likely explain that refinancing can temporarily lower your credit score but improve it over time.
Your mortgage broker will provide customized advice and guidance to help you make an informed decision about whether refinancing is right for you and how it affects your other financial goals.
4. What Are the Current Interest Rates and Trends?
Why ask the question: Interest rates often fluctuate as economic conditions shift. Securing a lower interest rate during refinancing can significantly benefit your financial situation. Staying informed about current rates and trends can help you time your refinancing to secure the best rate possible.
When it’s crucial: Timing your refinancing effectively is especially important when interest rates are unstable.
Since refinancing is a long-term commitment, waiting for and acting on optimal conditions can help you gain significant financial benefits. Your mortgage broker can provide insights into the current market conditions to help you make an informed decision.
What to look for: You can easily check current interest rates on your own. For instance, you can visit the Bank of Canada website for up-to-date average mortgage rates.
While assessing average rates is helpful, you also want to gain insights into future trends to help you plan. Ask your broker for predictions about future rate trends based on market analysis. You can research this information yourself, but asking for expert insight from your mortgage broker can help you gain informed insights and advice.
5. How Much Home Equity Can I Access?
Why ask the question: The equity you can access determines your borrowing capacity, or the amount of money you can release as part of the refinancing process. It’s worth understanding how much you can access if you’re considering renovations, investments, or different types of debt consolidation.
When it’s crucial: Understanding your equity access is critical if you have specific goals for these additional funds. Many homeowners explore refinancing to access a lump sum of money. If this applies to you, it is important to have your mortgage broker explain your equity potential. Ensure you can access enough money on favourable terms to meet your specific needs.
What to look for: Have your mortgage broker fully explain the calculations involved in assessing equity. Just because you can access the amount you need doesn’t mean it is financially feasible to do so.
6. Should I Choose a Fixed or Variable Rate Loan?
Why ask the question: Each loan type has pros and cons, depending on your situation. Learning more about them and how they apply to your financial goals can help you make a suitable decision.
Here’s a quick overview of each term:
A fixed-rate loan offers stability with predictable monthly payments. This makes it easier to budget, but it may come with a higher initial rate.
A variable-rate loan typically starts with a lower rate. This may save you money initially. However, the rate can fluctuate over time, leading to payment increases.
When it’s crucial: This is an important question as you consider your goals. Do you prefer stability with a fixed rate or potential savings with the risks of a variable rate?
There’s no right answer; it depends on your individual circumstances, goals, and risk tolerance. It’s important to thoroughly research the pros and cons of each option to determine the best choice for you.
What to look for: Ask for evidence from your mortgage broker that they understand your financial goals and risk tolerance. Compare the pros and cons of each option as they pertain to you. Your broker should explain how each rate type aligns, or doesn’t, with your goals.
7. What Are the Lender’s Requirements and Underwriting Process?
Why ask the question: You’ll need to know whether you meet certain eligibility criteria for refinancing, which vary from lender to lender. Asking this question can help you gather the necessary documentation for the process.
When it’s crucial: Ask this question as you consider an application. Being clear on the requirements at this stage can avoid later delays.
What to Look For: Ensure your broker outlines the eligibility criteria for any lender you are considering. Ask them to provide a checklist of required documents. This helps you prepare effectively to avoid mishaps that could delay the process.
8. What Is the Refinancing Process Timeline?
Why ask the question: Knowing the refinancing timeline can help you manage expectations. With financial planning, these wait times can also be critical if there are other expenditures to consider. Though refinancing typically takes two to four weeks, it can sometimes take longer.
When it’s crucial: Some financial plans are time sensitive. For example, you may need to access equity by a specific date. Getting an estimate of the likely wait time could be key to your decision-making process.
What to look for: Ask for a step-by-step timeline and be aware of potential delays. Your broker should provide a realistic timeframe that also accounts for various contingencies.
9. Does The Lender Offer Additional Benefits or Services?
Why ask the question: Some lenders offer additional benefits that can enhance your refinancing deal, such as reduced fees, flexible terms, or special incentives. Understanding these benefits can help you secure the best package.
When it’s crucial: When choosing between lenders, understanding any extra benefits they offer can help you make a more informed choice. This can also help you decide when comparing two similar options.
What to look for: Explore the extra products and services available, such as rate lock options, payment flexibility, or financial planning services. Ask your mortgage broker to explain the relative benefits of each. Here is a summary:
- Rate lock options allow you to secure a specific interest rate for a set period, protecting you from rate increases during the refinancing process.
- Payment flexibility allows you to adjust your payment schedule, such as making additional payments or changing the frequency of payments, helping you better manage your cash flow.
- Financial planning services provide professional advice to help you align your mortgage decisions with your broader financial goals, ensuring a comprehensive approach to your financial well-being. While you should receive this guidance from your mortgage broker, some mortgage lenders also provide this service.
10. What Prepayment Privileges Does This Mortgage Offer and Are There Any Penalties?
Why ask the question: You may be in a position to pay off your mortgage sooner than expected. Prepayment privileges allow you to pay off your mortgage faster without penalties, which saves you money long term.
When it’s crucial: It can be challenging to predict your financial future. If you anticipate making extra payments or paying off your mortgage ahead of schedule, discuss prepayment privileges with your broker. It’s also important to be aware of any strategies to avoid penalties associated with early or unscheduled repayment.
The Canadian government offers advice to ensure you know your rights when it comes to mortgage prepayment.
What to look for: Your broker should clarify prepayment options and their benefits, allowing you to leverage these privileges effectively. Ensure you fully understand your options for making extra payments and avoiding penalties to make the most informed financial decisions.
11. Are There Any Restrictions on Refinancing This Mortgage?
Why ask this question: Some mortgages come with restrictions that limit your refinancing options. Awareness of these limits can help you avoid legal or financial challenges and disappointment.
When it’s crucial: Before committing to a refinance, ensure there are no restrictions that could complicate the process.
What to look for: Your broker should provide a detailed explanation of any limitations or conditions you may face during refinancing.
For example, imagine you are refinancing a mortgage on a property in a high-rise condo building. Some lenders may have restrictions for properties in certain types of developments. If your broker informs you that the lender does not approve refinancing for properties in condo buildings over a certain height, this could complicate your refinancing process.
Understanding such conditions in advance allows you to either seek a different lender or be prepared for additional requirements needed to proceed with your refinancing plans.
12. Is the Mortgage with the Lowest Rate Always the Best Mortgage for Me?
Why ask this question: While a low interest rate is important, other factors like fees, flexibility, and terms are also crucial and should influence your decision. Avoid deciding based on interest rates alone. Evaluating all aspects can help you choose the mortgage that best suits your needs.
When it’s crucial: If you’re comparing several refinancing offers, this question can help you view them holistically. While one lender might have the lowest rate, they might not be the optimal choice.
What to look for: Your broker should help you assess all factors comprehensively. While the interest rate may be the most influential factor, you can also consider a more flexible option if the mortgage terms suit your goals better.
Final Thoughts
Refinancing your mortgage can be a strategic way to improve your financial situation. Asking the right questions is essential to avoid pitfalls and secure the most favourable terms. Knowing the questions you should ask your mortgage broker will help you approach the refinancing process with confidence, enabling you to make informed decisions toward your financial goals.
Understanding every aspect of your refinance can save you money and contribute to long-term financial success.
Remember, the process doesn’t need to be stressful or intimidating. With the support of a knowledgeable broker, you have a partner to guide you through every step.
References Bank of Canada. (2024). Interest rates posted for selected products by the major chartered banks.https://www.bankofcanada.ca/rates/banking-and-financial-statistics/posted-interest-rates-offered-by-chartered-banks/ Jarvis, C. (2024, July 16). Things to know before mortgage renewal. Nerdwallet. https://www.nerdwallet.com/ca/mortgages/things-to-know-before-mortgage-renewal Wood, C. (2024, June 7). Mortgage refinancing. Loans Canada. https://loanscanada.ca/mortgage/mortgage-refinancing Government of Canada. (n.d.). Your rights when it comes to mortgage prepayments. Financial Consumer Agency of Canada. https://www.canada.ca/en/financial-consumer-agency/services/rights-responsibilities/rights-mortgages/rights-prepayments.html Lee, M. (2024, July 10). Fixed vs. variable interest rates: What's the difference? Investopedia. https://www.investopedia.com/ask/answers/07/fixed-variable.asp
