Everyone knows that COVID-19 has impacted our economy. But, do you consider your personal choices to have a direct effect on the economy? As a mortgage broker, I've seen the COVID-19 fallout spread to the mortgage industry through refinancing. How?

Why Would I Refinance My Mortgage?

Refinancing your mortgage breaks the current contract you have in place. It gives you the chance to borrow additional cash or change the conditions of your original contract. When people refinance their mortgage, it is usually to get into a better place financially. For some, it is to reduce the mortgage interest rate, lower the monthly payment, and extend the term. Other times, however, it is to extract equity from the home, for reasons such as:

  • Helping with a down payment for a child's first home
  • Financing home renovations 
  • Consolidating high consumer debt

Because this isn't an essential step in a real estate transaction, Canadians will have a harder time refinancing in the wake of the current pandemic. Why?

Assessing the Risk as a Lender

A lender will always determine the risk when granting a loan. Because refinancing your mortgage is breaking your contract, and therefore paying off your current mortgage with a new one, it is not a necessary financial need. Understandably, lenders are skittish about income stability in the current economic environment. While you may have sufficient income or funds available now, what about next month, next year, or the years following that? 

Mortgage refinances are uninsurable, which means a more significant risk for the lender. Because of these uncertainties, refinancing has become more complicated than a month ago, and in some cases, impossible. Of course, no one can know what the future holds, but based on past economic downturns, lenders will assess the risk accordingly. 

Considering refinancing your mortgage with rates being low is understandable. Although it may be more difficult than expected, it may not be impossible, depending on your circumstances. If you are considering refinancing your mortgage, reach out to me by phone at (306) 220-0425 or contact me online.