By Leanne Mollica
Mortgage Broker | Mortgage Architects – Team Borle
Founder, My Mortgage Strategy
Serving Salmon Arm, the Shuswap, and British Columbia
Most people don’t wake up one morning and suddenly find themselves in financial trouble.
It usually happens gradually.
The credit card balance gets a little higher. The line of credit starts carrying a balance. An unexpected expense comes up. Maybe income changes. And everything simply costs more than it used to.
So we do what people naturally do.
We tread water.
And when it comes to your mortgage, that can sometimes mean waiting too long to ask whether the equity in your home could help.
Because the ability to refinance your home today doesn’t guarantee you’ll be able to refinance it six months from now.
Refinancing Is a Brand-New Mortgage Application
One of the biggest misconceptions about refinancing is that because you already own the home and already have a mortgage, accessing additional equity will be simple.
That isn’t always the case.
A refinance is a new mortgage application. Your lender will look at your current financial situation, including things like:
- your income
- your credit history and credit score
- your existing debts
- the value of your home
- how much equity you have
- current interest rates
- your ability to qualify under today’s lending guidelines
That means the answer you receive today could be very different from the answer you receive several months from now.
Your Home’s Value Matters
In Canada, refinances are generally limited to a maximum of 80% of the home’s lending value.
That means your borrowing room is tied directly to what the property is worth at the time you apply.
If property values decline, your available equity can decline with them.
For example, even if you believe your home is worth $700,000, the lender will generally base its decision on the value supported by the appraisal or other valuation method it accepts.
If that value comes in lower than expected, the amount available to refinance may also be lower than expected.
This becomes especially important when someone is hoping to consolidate a significant amount of higher-interest debt.
Your Credit Can Change While You’re Waiting
This is one of the biggest reasons I encourage people to start the conversation early.
If cash flow is getting tight, people often begin leaning more heavily on credit cards and lines of credit.
Balances rise.
Utilization increases.
Eventually, a payment may be late or missed.
And by the time refinancing feels absolutely necessary, the credit profile that might have qualified a few months earlier may no longer qualify for the same lender, rate or product.
Sometimes the refinance is still possible — but it may need to be done with a different type of lender and at a higher cost.
That’s why timing matters.
Income Can Change Too
Your income is another major part of qualifying.
A refinance that works while you’re employed full-time may look very different if your hours are reduced, you change jobs, you move to self-employment, or your income becomes less predictable.
The same applies if one person in a household stops working or if there is a separation, illness or other major life change.
Again, this doesn’t mean you should refinance simply because something might happen.
It means that if you’re already starting to feel financial pressure, it’s worth understanding your options before your situation becomes more difficult.
Refinancing Is Not Always the Answer
This is important.
Just because you have equity in your home doesn’t mean refinancing is automatically the right decision.
Sometimes refinancing makes sense.
Sometimes restructuring debt another way makes more sense.
Sometimes a home equity line of credit may be worth exploring.
Sometimes waiting until renewal makes more financial sense than breaking an existing mortgage and paying a penalty.
And sometimes the best advice is to leave your mortgage completely alone.
The goal isn’t to move debt around for the sake of moving it.
The goal is to look at the entire picture and determine whether using your home equity actually improves your financial situation.
Look at the Cost, Not Just the Payment
Debt consolidation through a mortgage can significantly reduce monthly payments because mortgage rates are usually much lower than credit card or unsecured line-of-credit rates.
But a lower monthly payment doesn’t automatically mean the debt has become cheaper.
If short-term debt is stretched over a 20-, 25- or 30-year mortgage amortization, the total interest paid can still be significant.
That’s why I look at more than just the new payment.
We need to consider things like:
- the interest you’re currently paying
- the mortgage penalty, if applicable
- legal and appraisal costs
- the new mortgage rate
- the amortization
- your monthly cash-flow improvement
- your longer-term repayment plan
A refinance should solve a problem — not simply hide it inside a mortgage.
The Best Time to Ask Is Before You’re Out of Options
You don’t need to wait until you’re missing payments.
You don’t need to wait until your credit cards are maxed out.
And you don’t need to wait until you’re lying awake wondering how you’re going to make everything work next month.
Sometimes the best outcome of a refinance conversation is that we decide you don’t need to refinance at all.
But having that conversation while your income, credit and equity are still strong gives us far more options to work with.
If you’re starting to feel like you’re treading water financially, call me.
Not because you necessarily need to refinance today — but because I’d much rather help you understand your options before you need one of them.
Borrow when you can, not when you must.