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Toronto homeowners who are thinking of refinancing their mortgage have various options for replacing their current mortgage with another, each with its own pros and cons. When asking what are mortgage refinancing options in Toronto, you might be surprised to learn that you qualify for a type of loan you never even knew existed, one that is perfect for your situation. While each lender has slightly different loan features, there are three basic types of refinancing options available in Toronto.

Getting a New Mortgage with a Different Lender

This type of refinancing option is probably the one you’re most familiar with, as it’s the most common type of mortgage refinance. It involves “paying off” your current lender by taking out a new mortgage with a different lender. The new lender pays off your current loan balance and issues you a new mortgage for that paid-off amount and any cash you’re taking out against your equity.

Changing mortgage lenders is a popular way to refinance mortgage loans because you can use the equity you’ve built up in your home to get cash for home improvement projects, to pay off other bills, or to use on major expenses like weddings, college, or vacations. You also typically get a lower interest rate on your new loan, which is an incentive to refinance because you’ll end up paying less over the term of the loan. In some cases, homeowners might refinance this way to get a shorter loan term so they can pay their loan off earlier than expected.

Obtain a Home Equity Line of Credit (HELOC)

A home equity line of credit (HELOC) is a type of refinance option that doesn’t require you to change your lender, although you can use a different lender for your HELOC if you choose. Using the equity you’ve built up in your home, you take out a line of credit that works like a credit card, but usually at a much lower interest rate. To qualify for a HELOC, you have to prove you will be able to afford the payments for the line of credit and your regular mortgage each month, if you were to take out the entire amount of your loan.

A HELOC works differently than a home equity loan in that you do not have to borrow the entire amount of the loan. You are given a line of credit that is capped at a specific amount (the amount you can afford payments on) and you can use any amount up to that cap as needed. The best aspect of a HELOC is that it offers instant access to cash if and when you need it at significantly lower interest rates than credit cards. Homeowners often use a HELOC for home improvements that they want to tackle over time and don’t need the full loan amount all at once.

Blend Your Current Mortgage

If your goal in refinancing is to obtain a lower interest rate, but you don’t want to change mortgage lenders or go through the entire refinance process, you may be able to get a blended mortgage. This is when you refinance your existing loan with your current mortgage lender with an interest rate that is lower than your current rate, but higher than the rate on a brand new loan. This is not always an option that lenders offer, but it is a good way to lower your rate without going through the refinance process, which can be complex and lengthy.

Homeowners who choose to blend their current mortgage usually do not take out additional cash from their mortgage. They are only interested in getting a lower interest rate that will allow them to pay less over time for their home. If your credit is less than stellar, a blended mortgage may be the best way to refinance your mortgage because you don’t need to qualify for a loan with a new lender. Your current lender will be able to use your mortgage payment history as a point in your favor for getting the blended mortgage.

Which Loan is Right for You?

There is no one-size-fits-all approach toward refinancing your mortgage. The best way to determine which option is right for you and your current situation is to seek advice from a certified mortgage broker, who is familiar with all the options available to you and can help you pick the best solution for your needs. The mortgage industry is sometimes complex and a mortgage broker can help simplify it for you, especially if you’ve never refinanced your loan before.

Conclusion

If you’re currently paying a higher interest rate than the going market rate or you’re looking to take out cash using your home’s equity, refinancing your loan is a great way to improve your financial foundation. A mortgage broker can help you determine which option is best for you and help you find a lender that offers the option you choose.