Many individuals and families that I’ve recently met in my mortgage practise are still digging out of the recession, with unexpected debt. As the economy grew between 2004 and 2008 at a high pace, many manufacturing and labour workers relied on overtime income as a part of their regular pay. This is also true for white-collar workers where bonuses became expected as an income supplement.
We’ve been in an economic recession for almost a year-and-a-half and many sectors still haven’t recovered. A turn-around in manufacturing and more job prospects is expected; however, growth in the future will be slower and gradual.
If you’re carrying debts that total more than $15,000 outside of your home mortgage or a car loans/leases, you should consider refinancing that debt into your mortgage. The two benefits include a decrease in your monthly carrying costs and improved household cash flow. It’s also a great time to look at a family budget and understand what you can reasonably expect for income versus the expenses you have.
Here’s a summary of things you need to consider:
You’ll need 20% equity in your home
A good place to start is to determine what equity you have in your home. It’s best to look into refinancing if you have at least 20% equity in your home. At this point you have enough equity to refinance some debt but there will be a default insurance premium that you’ll need to pay. If you’re revolving debts plus your mortgage, and mortgage-related refinance costs equal less than 80% of the value of your home, you likely won’t have to pay the default insurance premium. The value of your home will be determined by an independent appraisal because banks and lenders want to ensure that you are not overleveraging the new mortgage loan that they’re giving.
Know your penalty costs
Call your mortgage lender or broker and they will help you determine the penalty costs. If your mortgage is with a traditional chartered bank, most good mortgage brokers have access to those lenders and can help you get the penalty cost, even if you did not get the mortgage through them originally. They will have you sign a “client consent” form which gives them the authority to call the lender on your behalf and ask the correct questions so that an exact penalty cost can be determined.
No fee refinances are available
Some wholesale banks that mortgage brokers work with will offer no-fee refinances. If there is no change to the title of the mortgage, a title-closing company can be used in place of a lawyer. The main benefit of this is that there are no legal costs. Some lenders will also pay up to $2000 worth of penalty costs. The only thing you may need to pay is the cost of an independent appraisal which is normally less than $300.
