New mortgage rules have definitely had an impact on new home buyers, but those with an existing first mortgage who want to refinance might be in for a surprise. At renewal time, you have the option of increasing your mortgage to consolidate debts, for example, or for home improvements, or keep the mortgage amount the same and continue to pay it down. In both cases, it’s best to shop around to see if there is a better rate or a better mortgage product. Lifestyle goals often change and your current mortgage, as is, may not be suitable anymore. But here’s the challenge – if you switch lenders for a better rate, or if you want to change the amortization or refinance with your current lender, then you must re-qualify. There are two ways you can help give yourself the best opportunity to qualify- don’t have excess debt and have equity. 

Here are few scenarios you may find yourself in when deciding to switch lenders or refinance:

1. Switching lenders to take advantage of a better rate. Most lenders will take your mortgage as-is as long as it’s not tied to a line of credit and there are no increased risks, meaning, no changes in amortization or increases in the amount of the mortgage. But, if it means your housing expenses or gross debt service increases to higher than 39%, then you may only be able to stay with your current lender. You’re potentially stuck with the term and rates.

2. Penalties can be high. You opted for a relatively-high fixed rate and you’re two years into the mortgage and rates have come down substantially. You want to break your mortgage and get a new one but the penalties are high.

3. New ratios will impact your ability to get approved. The mortgage rules changed the qualifying ratios that traditional lenders use. So, if you are carrying a high debt load, then you may not qualify.

4. Your line of credit and changing your lender. Rules for home equity lines of credit (HELOCS have changed dramatically. No longer can you borrow up to 80% loan-to-value (LTV). The max amount you can access as a revolving line is 65% LTV.

5. Thinking about refinancing to consolidate debt? Think again. Your insured mortgage can’t be more than 80% LTV. If you don’t have a lot of equity yet, it may not happen. 

Despite these scenarios, there are solutions. For example, breaking your mortgage for a lower interest rate may save you money over time and may be worth it. Also, if you have substantial equity in your home, getting a HELOC may be a good way to access funds to pay off debts. Each client has different needs and different financial goals. 

Yours is a unique situation and needs a tailored solution. I can help. As a professional mortgage broker, I have access to traditional and alternative lenders – some with less stringent qualification guidelines. 

If you are considering any of the above options, I will find you a mortgage product that fits your needs, quickly and professionally. 

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