Real Estate

Mortgage refinance advice, please?

  • Last Updated:
  • Jun 27th, 2016 11:43 pm
Tags:
None
[OP]
Newbie
Nov 19, 2010
63 posts
12 upvotes

Mortgage refinance advice, please?

I'm coming up for mortgage refinance in October and need some advice.

Here's the situation:
- Currently owe about $390k on my mortgage, market value of condo is approximately $500k, maybe 5k higher
- Equifax score was 715 yesterday, dropped to 713 after the mortgage broker did a credit check today, he says he won't need a second check because this score is valid for the less-than-120 days remaining until the refinance
- I have 2 large debts: 35k (out of 40k limit, 12% interest) on my LOC and 39k (out of 43k limit, 13% interest) on my credit card
- I'm expecting 15k in refund from the CRA once I file my 2015 taxes (targeting to get this done this week)

I really want to pay down the consumer debt within the next two years.

Current plan: apply the 15k tax refund to the LOC (that way, the money is still available if I run into an emergency), refinance and take out approximately 20k and pay down the rest of the LOC, apply the savings in interest payments plus monthly 2k-ish to the credit card.

All very doable. Now come the questions: I'd like to apply for the MBNA 0% BT card and use that to accelerate the paydown.

What is the impact of doing that on my current credit score? I know it will cause a drop, but how much of a drop, and should I even care, assuming the mortgage broker is correct and won't need to check credit again before the refinance is complete?

Should I do that BT now or wait until after I get my tax refund? (Con: I may only qualify for a lower limit right now, versus after paying down 15k; Pro: I'd have a few months to show regular paydowns on the MBNA card)

Or should I not even bother with the MBNA bit and just focus on the basic paydown?

Okay, before you remind me, yes, I'm aware I'll be transferring some of the consumer debt to my mortgage if I refinance more than I currently owe ... I'm justifying it because of the much-lower-than-12% interest rate on a HELOC or mortgage.

Thanks for any advice!
16 replies
Deal Addict
Apr 4, 2013
1274 posts
407 upvotes
Could be challenging to refi your mortgage. Mortgage refis are limited to 80% of the property's value. Even at a value of $500k, that means max refi is $400k. You owe $390k, so there is only $10K available. But, you will have fees with the refi - appraisal may be requested, legals....

I also noted that you used the word "about" a lot - I understand, as most people don't know exactly how much they owe on their mortgage at any time. Challenge is that owing say $392K on your mortgage and having your condo come in at $490K means that there is no equity to refi.

Did your mortgage broker give you an idea on the value of your property?
[OP]
Newbie
Nov 19, 2010
63 posts
12 upvotes
Yes, the mortgage broker is the one who gave me the 500-510k number, and warned me I'll need an appraisal to confirm the value. He says it *could* be worth more, being right downtown, hence the preference for an actual appraisal.

The 390 is what I currently owe based on the original amortization schedule, but interest rates dropped twice during the term, so he thinks I owe between 385 and 390k ... I'm taking the worst case scenario here. Best case: 385 principal balance, 505k condo value ... There's the 20k I need. If it's 390k and 500k, I'll borrow the available 10k and use my 2k monthly to pay the remaining 10k down in an extra 6 months.

He also tells me that if the condo only appraises at 450k (unlikely, but I wanted to know my options), I would still qualify for a fixed rate refinance, just not be able to pull out additional funds ... If that should happen, I'll rethink my payback strategy and schedule, but then the MBNA would be even more attractive.

The broker tells me to set aside $400 for the appraisal, and 750 for lawyer's fees ... i have that available separately. According to him, my current lender will refinance with no additional fees.
Deal Fanatic
User avatar
Feb 2, 2014
8868 posts
2540 upvotes
Toronto
beonice wrote: Yes, the mortgage broker is the one who gave me the 500-510k number, and warned me I'll need an appraisal to confirm the value. He says it *could* be worth more, being right downtown, hence the preference for an actual appraisal.

The 390 is what I currently owe based on the original amortization schedule, but interest rates dropped twice during the term, so he thinks I owe between 385 and 390k ... I'm taking the worst case scenario here. Best case: 385 principal balance, 505k condo value ... There's the 20k I need. If it's 390k and 500k, I'll borrow the available 10k and use my 2k monthly to pay the remaining 10k down in an extra 6 months.

He also tells me that if the condo only appraises at 450k (unlikely, but I wanted to know my options), I would still qualify for a fixed rate refinance, just not be able to pull out additional funds ... If that should happen, I'll rethink my payback strategy and schedule, but then the MBNA would be even more attractive.

The broker tells me to set aside $400 for the appraisal, and 750 for lawyer's fees ... i have that available separately. According to him, my current lender will refinance with no additional fees.
I would call up your existing lender and ask them for the exact amount owing on the renewal date.

If it's $385k and your condo is worth $505k, then you can get $19k. Remember, you have to pay for discharge fee ($300), legal fees ($800) and an appraisal ($300).

If it the value comes in low, it's NOT a refinance, but a simple mortgage transfer. You don't have to pay for legals and an appraisal if you switch lenders.

What rates is your current broker offering you?
Kevin Somnauth, CFA
Principal Broker - First Toronto Mortgage - MA (Ontario #13176, BC #X301007)
Real Estate Salesperson - Century 21 Innovative
Deal Fanatic
Nov 22, 2015
5781 posts
5284 upvotes
beonice wrote: Yes, the mortgage broker is the one who gave me the 500-510k number, and warned me I'll need an appraisal to confirm the value. He says it *could* be worth more, being right downtown, hence the preference for an actual appraisal.

The 390 is what I currently owe based on the original amortization schedule, but interest rates dropped twice during the term, so he thinks I owe between 385 and 390k ... I'm taking the worst case scenario here. Best case: 385 principal balance, 505k condo value ... There's the 20k I need. If it's 390k and 500k, I'll borrow the available 10k and use my 2k monthly to pay the remaining 10k down in an extra 6 months.

He also tells me that if the condo only appraises at 450k (unlikely, but I wanted to know my options), I would still qualify for a fixed rate refinance, just not be able to pull out additional funds ... If that should happen, I'll rethink my payback strategy and schedule, but then the MBNA would be even more attractive.

The broker tells me to set aside $400 for the appraisal, and 750 for lawyer's fees ... i have that available separately. According to him, my current lender will refinance with no additional fees.
I think you're getting ripped off. Go to a brick and mortar bank. They will charge you $250 for appraisal and $400 for legal fees; many will even waive or cover this for you. Best of all, most banks wont even charge the fees if the appraisal comes in too low.

As for the mortgage balance... you can't just sign into your online banking? or have a look at your most recent mortgage statement?
Deal Addict
Apr 4, 2013
1274 posts
407 upvotes
Do you know if your broker actually requested the value of your condo using Pureview or if he just thinks that the condo is worth a certain amount. It is quite possible to refinance the condo without an appraisal.
[OP]
Newbie
Nov 19, 2010
63 posts
12 upvotes
superfresh89 wrote: I think you're getting ripped off. Go to a brick and mortar bank. They will charge you $250 for appraisal and $400 for legal fees; many will even waive or cover this for you. Best of all, most banks wont even charge the fees if the appraisal comes in too low.

As for the mortgage balance... you can't just sign into your online banking? or have a look at your most recent mortgage statement?
LOL. i did just log into the online site ... I'll owe 382,400.something when my last payment is made in October.

Everyone tells me the big banks are less flexible ... And, given the snarliness I had from RBC 5 years ago when I first approached them for a mortgage, I'm not certain I want to try them agian. Also, if I approach multiple banks, wont that drag down my credit score?
[OP]
Newbie
Nov 19, 2010
63 posts
12 upvotes
cbr663 wrote: Do you know if your broker actually requested the value of your condo using Pureview or if he just thinks that the condo is worth a certain amount. It is quite possible to refinance the condo without an appraisal.
He didn't. We pulled up MLS to look for listings of similar properties in my neighbourhood.

Also, he suggested the appraisal because I told him I'm looking to pay down the debt, so wanted to get the highest possible appraised value.
[OP]
Newbie
Nov 19, 2010
63 posts
12 upvotes
And to all of you: is it possible, with this sort of LTV, to get a readvancing (is that the right term) HELOC? If so, what blender should I contact?

I admit that I hate the thought of rolling this debt into the price of the home, and somehow, putting it into the primary mortgage seems worse than sticking it into a HELOC.

Yes, please remind me that the point here is to pay down the debt ASAP, that the rate on the primary mortgage will definitely be lower than even the best HELOC. I know this is an unwarranted cringe when I have 75k in consumer debt.
[OP]
Newbie
Nov 19, 2010
63 posts
12 upvotes
CdnRealEstateGuy wrote: I would call up your existing lender and ask them for the exact amount owing on the renewal date.

If it's $385k and your condo is worth $505k, then you can get $19k. Remember, you have to pay for discharge fee ($300), legal fees ($800) and an appraisal ($300).

If it the value comes in low, it's NOT a refinance, but a simple mortgage transfer. You don't have to pay for legals and an appraisal if you switch lenders.

What rates is your current broker offering you?
Thanks for the heads-up about discharge fees ... I was being naive enough to think that there wouldn't be additional fees at the *end of* the term!

Rate quoted was prime minus .49 ... From the main mortgage rates thread, it appears there may be better rates out there.
Deal Fanatic
Nov 22, 2015
5781 posts
5284 upvotes
beonice wrote: And to all of you: is it possible, with this sort of LTV, to get a readvancing (is that the right term) HELOC? If so, what blender should I contact?

I admit that I hate the thought of rolling this debt into the price of the home, and somehow, putting it into the primary mortgage seems worse than sticking it into a HELOC.

Yes, please remind me that the point here is to pay down the debt ASAP, that the rate on the primary mortgage will definitely be lower than even the best HELOC. I know this is an unwarranted cringe when I have 75k in consumer debt.
If you go with one of the Big 5, at 80% LTV you can get a mortgage/HELOC combo set up at around the same cost as a refinance (legals, appariasal). Just wondering, do you happen to be in the Ottawa area?

I wouldn't be worried about credit score for mortgage shopping at all. However, I'm not convinced that this 20K advance is worth $1K in legal fees. If I were you, I would see if I could get approved for a debt consolidation loan and tough it out for at least another year. By then, you should have a little more equity to work with. I recommend PC Financial over the big 5 as they offer 7 year amortization on debt consolidation loans.

Another thing that hasn't been mentioned... although switching lenders may help you save on rate/fees, don't forget that there may be a prepayment penalty to break your existing mortgage - could range from 3 months interest to tens of thousands of dollars if it's a fixed rate. Edit: just realized you're at the end of your term. Scratch that.

I dunno, it seems like an awful lot of trouble and money for such a small advance. I've gotten credit cards with higher limits. I'd try getting a loan first.
Deal Addict
Apr 4, 2013
1274 posts
407 upvotes
beonice wrote: He didn't. We pulled up MLS to look for listings of similar properties in my neighbourhood.

Also, he suggested the appraisal because I told him I'm looking to pay down the debt, so wanted to get the highest possible appraised value.
That's unfortunate as a Pureview report may have given him a value that would have been accepted by the lender and not necessitated an appraisal. Just cheaper and quicker all around and easier for you. Perhaps he doesn't have access to Pureview?
Deal Guru
User avatar
Mar 23, 2008
12211 posts
8619 upvotes
Edmonton
More important than all of this... Have you addressed the reason WHY you're 74k in debt? If all you're trying to do is shuffle things around and pay off your consumer debt, if you don't address the cause, you'll end up with a higher mortgage AND 75k more of consumer debt. Addressing the symptoms without addressing the problem is pointless.

IMHO.

C
[OP]
Newbie
Nov 19, 2010
63 posts
12 upvotes
superfresh89 wrote: If you go with one of the Big 5, at 80% LTV you can get a mortgage/HELOC combo set up at around the same cost as a refinance (legals, appariasal). Just wondering, do you happen to be in the Ottawa area?

I wouldn't be worried about credit score for mortgage shopping at all. However, I'm not convinced that this 20K advance is worth $1K in legal fees. If I were you, I would see if I could get approved for a debt consolidation loan and tough it out for at least another year. By then, you should have a little more equity to work with. I recommend PC Financial over the big 5 as they offer 7 year amortization on debt consolidation loans.

Another thing that hasn't been mentioned... although switching lenders may help you save on rate/fees, don't forget that there may be a prepayment penalty to break your existing mortgage - could range from 3 months interest to tens of thousands of dollars if it's a fixed rate. Edit: just realized you're at the end of your term. Scratch that.

I dunno, it seems like an awful lot of trouble and money for such a small advance. I've gotten credit cards with higher limits. I'd try getting a loan first.
I'm in downtown Toronto, in one of the revitalization projects that hasn't appreciated quite as nicely as some others did.

75k seems a lot to me, but you're probably correct. I'll talk to the bank and see what other alternatives are possible. I'm still thinking the refinance is going to be the lowest interest rate, enabling a quicker payback.
[OP]
Newbie
Nov 19, 2010
63 posts
12 upvotes
CNeufeld wrote: More important than all of this... Have you addressed the reason WHY you're 74k in debt? If all you're trying to do is shuffle things around and pay off your consumer debt, if you don't address the cause, you'll end up with a higher mortgage AND 75k more of consumer debt. Addressing the symptoms without addressing the problem is pointless.

IMHO.

C
Yes, that's the thing that makes me cringe, too .. My own fault for letting it spiral up like this. Started out with a couple of years of unemployment after a layoff that wiped out both my confidence and my common sense. Fought my way back out of the stupidity and the bad credit, now have a decent job.

For the past 5 years, I have been focused on cleaning up my act, but also tried starting a couple of business ventures and didn't keep a close eye on those expenditures... Will I do it again? I will definitely try another startup. But I'll be watching the financials and will pull the plug hopefully a lot sooner next time.
Member
Aug 20, 2014
223 posts
89 upvotes
Toronto, ON
OP - As someone who recently shopped around restructured his mortgage to consolidate other debts (although much smaller), I strongly advise you to talk to banks and credit unions. I met with BMO, TD, RBC, PC and Meridian. All of them were willing to cover (a) legal fees (b) appraisal fees (c) transfer/discharge fee from your current mortgage provider.

Granted you may not get prime-0.49 (best I heard was prime-0.45) but you do save on those costs listed above. In addition, banks will have a little more discretion and control over how much they approve you for and may go slightly over the appraised value if everything else looks ok with your account.

Bottomline is, do more research instead of talking to just one broker.

Good luck!
[OP]
Newbie
Nov 19, 2010
63 posts
12 upvotes
sqara82 wrote: OP - As someone who recently shopped around restructured his mortgage to consolidate other debts (although much smaller), I strongly advise you to talk to banks and credit unions.

<snipped>

Bottomline is, do more research instead of talking to just one broker.

Good luck!
Thanks ... It's good to hear from someone who's been there, done that just recently. I'll definitely talk to other lenders. As a couple of others have suggested, talking won't hurt, and then I can go with whoever has the best rates and deals for my specific situation.

Top