How To Take Advantage Of Low Interest Rates And Refinance For Renovations

The ongoing process of paying off a mortgage can make it difficult for homeowners to put their hands on extra cash they'd like to have to cover renovations to their homes. If you are a Canadian homeowner, however, you may be able to flip that equation on its head by refinancing your mortgage to pay for home renovations in the country's current low-interest rate environment.

How The Process Of Refinancing For Renovations Works

To put things in extremely simple terms, when you think about your mortgage, odds are you think of some combination of the following three numbers:

• Your mortgage interest rate;

• The dollar amount you borrowed to pay off your house;

• The duration of your mortgage.

These are the three numbers that went into calculating your monthly mortgage payment.

Now, when interest rates fall, many homeowners find it worth their while to refinance their mortgage because a lower mortgage rate will enable them to shorten the duration of the mortgage or owe a lower monthly payment (or both). However, one often-overlooked advantage of a mortgage refinancing has to do with that other number: how much you borrow.

Say you have $10,000 worth of home restoration you would like to undertake but you don't have the cash on hand and don't want to run up your credit card debt. Refinancing at a lower rate may allow you to take out a mortgage for that $10,000 on top of what you owe on your home, taking the money as cash, potentially without increasing your monthly payments or duration of your mortgage at all. (Record-low interest rates such as those Canada is currently enjoying may even make it feasible for you to reduce your monthly payment and/or duration as well.)

Low Interest Rates Could Disappear Any Time

The important thing to understand about these low interest rates is that they have no set expiration date: rates go up when the Bank of Canada says so, and although the Canadian central bank has never been easy to handicap, its immediate future is volatile given the upcoming retirement of Mark Carney, Bank of Canada governor. In fact, certain economists believe that, by 2016, rates could see a jump of up to 60%. As a result, the only time at which a homeowner who is hoping to refinance for renovations can definitely take advantage of these record-breaking low interest rates is now.

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