Real Estate: Mortgage Refinancing – The Skinny
With mortgage rates at an all time low, many people are choosing to refinance their homes and many first time homebuyers are taking the opportunity to delve into the market. With variable and fixed rates under 5% why wouldn’t they.
When refinancing a property the lender will require a lawyer to search title and register a new mortgage in order to make sure that their interest is properly secured. If a borrower gets their own lawyer, or the lender provides one, the borrower will incur all of the legal costs associated with the refinance. In addition, if the home is a condominium unit, the borrower will need to obtain a status certificate which is reviewed by the lawyer as part of their title search. Status certificates cost around $100.00 and can be ordered from the property management company. In a typical refinance, just as in a purchase, the lawyer will be acting for both lender and borrower and such there is no confidentiality between the parties and any information given to the lawyer must be disclosed if the information may have an adverse effect on the loan or may breach conditions of the mortgage.
In a refinance, if a borrower has outstanding debts in the form of credit lines and/or credit cards, the lender will most likely require that any equity paid out from the refinance goes towards paying off those (often higher interest rate) debts. Therefore the lender will instruct the lawyer to directly pay off those debts before any money is disbursed to the borrower. This is done because the lender wants to make sure that the borrower will be able to pay off their mortgage without having other burdensome debt obligations.
If the borrower is using the money from the refinance to fund renovations to their home, the borrower should make sure that when applying for the mortgage, the lender knows what the funds are being used for. Remember, the lender’s interest in a home is greater than the borrowers and therefore the lender wants to make sure that any improvements made to the home are improvements that help the marketability of the home for resale purposes.
The lender also needs to know if the borrower is renting out or planning to rent out their property. Lenders do not like loaning money to income properties because they are considered higher risk loans. Landlords who may be solely depending on the monthly tenant payments to service their debt could easily default on their mortgage payments if a tenant does not pay on time, or if the property becomes vacant (both of which often happen with income properties). The lender may require the borrower to assign all the rents to the lender and to register such assignments on title. If the borrower is renting the property and not disclosing to the lender that fact, the borrower may also be in breach of the mortgage agreement.
When refinancing make sure that you provide complete disclosure to your lender and make sure that you will be able to service you mortgage if interest rates drastically jump. Choosing between fixed and variable rates is a personal choice and depends on the circumstances of each and every borrower. A mortgage is generally the largest loan a person will ever get in thier lifetime and as such prudence and care is required of the borrower in order to ensure good and availible credit througout their life.