Borrowing under three per cent has benefits*
With five-year fixed rates as low as 2.59 per cent and variable rates at 2.15 per cent, anyone with a current mortgage rate over three per cent could potentially benefit from a refinance, and should be having a conversation with a mortgage professional.
There are three good reasons to refinance in a low-interest-rate environment. The first, and most obvious, is refinancing to a lower interest rate to save money. To do so, a borrower would call his or her lender to find out what the payout penalty on the mortgage would be, and then have a mortgage professional calculate the savings of the lower interest rate.
If the savings are greater than the payout penalty, then refinancing to a lower rate makes sense. If it is less than the payout penalty, then it makes sense to keep the existing mortgage and wait until the next anniversary date to check again.
The second reason to refinance is debt consolidation. If you have credit card debt, car loans or other debts, consolidating them into the mortgage can relieve the burden of servicing multiple monthly payments. In many cases, refinancing can free up hundreds, if not thousands, of dollars of cash flow.
The third reason is to take out equity for investments or home improvements. If you have wanted to renovate that basement or upgrade the kitchen, refinancing at a low rate can make a lot of sense. The opportunity to borrow at less than three per cent makes the money cheap and will also add value to your home, making it a win-win.
Furthermore, if you wanted to pad your nest egg a little, you could borrow to invest. When many safe investment portfolios are returning six to eight per cent, borrowing money at three per cent to invest makes a lot of sense. The important thing to remember though is leverage can be dangerous, and you should only borrow to invest if you are confident in your investments.
Last, but certainly not least, borrowing to invest in real estate is both highly productive and one of the simplest investments a person can make. Housing is one of three basic needs and something that nearly everyone understands, which makes it a great investment. Real estate can build wealth faster and safer than any other investment vehicle. Plus, it is easy to comprehend.
To learn more about real estate investing, Mortgage360 will be hosting its next Cash Flow Club meeting Tuesday, April 28. To register, visit www.mortgage360.ca/cash-flow.
Nolan Matthias holds a bachelor of arts in Economics, is the co-founder of Mortgage360 and the author of The Mortgaged Millionaire. Call Nolan at 403-615-6132 with your questions or to set up an appointment with an Accredited Mortgage Professional (AMP).
* This content was produced by CREB®Now’s advertising department, in consultation with Mortgage360. CREB®Now’s editorial department was not involved in its creation.