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Know your Mortgage Refinance Needs in Canada During the COVID-19 Outbreak

 

As many countries continue to respond to the economic bailout caused by the COVID 19 pandemic, there has been a 'magical 'rise in Canadians applying for a mortgage refinance following the Bank of Canada’s latest emergency rate cut.

In the last week of March, the Bank of Canada announced for the third time it would be cutting its mortgage interest rates by ½% in response to the outbreak, bringing the interest rate down to 0.25%, which is the lowest level since 2010.

What’s the Canadian Government Doing?

The current Federal Government has taken steps to support Canadians through the COVID-19 crisis by supporting their jobs, but they are also planning to implement these steps of freezing mortgage payments in provinces across Canada.

Moreover, the government has taken certain measures to make it easier for Canadians to work with their mortgage lenders. Including all approaches to free up options for banks by purchasing up to $50 billion in insured debts. All these measures, in addition to the full range of options Canadians already had for managing their mortgage through critical times, will make it easier for them to get through the crisis.

To aid people with mortgage refinance through the use of mortgage tools, the current federal government has begun taking applications for the Canada Emergency Relief Benefit, whose ultimate aim is to replace a level of income for people that are struggling through a loss of income.

What to Know About Mortgage Refinance During COVID-19?

A mortgage refinance allows property buyers to pay off a prior loan amount and replace it with a new one. It is a useful process that can help homeowners improve their financial stability by getting a lower interest rate, accessing home equity, consolidating debt or changing their terms.

In a recent study conducted by top mortgage professionals, it was found that people generally take the decision to go with mortgage refinancing because of a variety of reasons. The most popular being switching to a lower rate (34%), moving to a new home (25%) and taking equity out of an existing house (14%).

As a result of the COVID-19 crisis, many mortgage holders are opting to go for mortgage refinance to give themselves more room for financial handling. Today, property buyers are choosing to:

 

• Secure a lower mortgage rate.

• Lower their mortgage payments and extend their plan criteria.

• Add the valuable aspect of a home equity line of credit (HELOC).

• Work on consolidating the high-interest debt.

• Work on home equity ahead of potential job loss or property value reductions.

 

However, in this critical time of the pandemic, there are a few extra details to consider before contacting your mortgage lender.

 

Stringent Employment Verification

Mortgage lenders are required to obtain employment verification to process mortgage applications. Many Canadians now find themselves in a situation where they cannot work; they ultimately no longer qualify for a personal loan. Apart from this, those who have been fortunate enough to work from home or have a job have been supplemented to prove their job security.

 

Application Process and Timeframe

Banks and credit unions are working in overdrive to manage urgent requests and emergency situations to fill the gap of money transactions. Although financial bodies are still offering a full range of products, a mortgage refinance may be a lower priority behind purchases and mortgage lender switching. Under these circumstances, it could take forty days or more to close a refinancing opportunity, considering the varied demands. Examine each step very carefully while making a quick infusion of cash!

 

Mortgage Penalties and Additional Costs

 Breaking a closed deal of existing closed mortgage refinance consideration will result in some penalties. Mortgage penalties are the lender's way of making up for lost revenue. So, you will need to calculate and sum up these costs.

For a variable rate mortgage, penalties amount to a total of three month's interest on your loan.

For fixed-rate mortgages, the matrix is not as easy. Penalties are estimated using interest rate differentials or three months, whichever is greater. These overall figures can vary depending on your mortgage contract and your lender. Mortgage lenders can use the posted rate or a discounted rate, which can result in higher penalties for fixed-rate mortgages.

In such cases, start by consulting your mortgage contract and review how your lender will determine your mortgage penalty. You can calculate possible prepayment penalty costs by connecting to RateShop.ca's mortgage refinance calculator. Keep in mind, for a re-finance to be beneficial; the costs mustn't outweigh the potential savings.

 

Additional Costs

Apart from mortgage penalties there are also costs associated with a title search, title insurance, home appraisal and legal fees.

 

Conclusion

Mortgage refinance is a situation that makes financial sense for your mortgage payment transactions. Remember that falling property values, your credit score and employment status can affect your ability to successfully complete a mortgage refinance. That’s why experts recommend you apply for re-finance before you need one.


Maria Delani Maria Delani 05/06/2020
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