Refinance your mortgage and take some of your equity out as cash.
A cash-out refinance replaces your current mortgage with a new, larger one. You receive the difference as cash. Here is what it involves and what to check first.
You've started an application.
Saves as you go · No credit check · A licensed mortgage professional follows up
1Most lenders let you refinance up to 80 percent of your appraised home value, and the extra above your current balance is paid to you.
2Everything moves to the new lender or terms: a new rate, term and amortization on the whole balance, not only the new money.
3Breaking your current mortgage early can mean a prepayment penalty, either three months of interest or an interest rate differential, which can be large on a fixed rate.
4It often works best near your renewal date, when there is no penalty or a small one.
Get ready
What lenders will ask you for
Your current mortgage statement and renewal date
Property tax bill and home insurance
Proof of income: pay stubs and T4s, or 2 years of Notices of Assessment
A list of the debts you want to pay off, if any
Photo ID
The lender will order an appraisal
Your options
Which kind of lender fits you
Option 1
Refinance at renewal
No penalty to switch lenders or restructure. The cleanest time to take equity out.
Option 2
Refinance mid-term
Possible, but you pay the prepayment penalty. A broker calculates whether the new rate and cash outweigh it.
Option 3
Second mortgage or HELOC instead
Leaves your current mortgage rate and term untouched. Worth comparing if you have a very good rate or a large penalty.
Avoid these
Common mistakes
!Ignoring the prepayment penalty on the existing mortgage.
!Taking more cash than you need and increasing your payments for years.
!Extending the amortization back to 30 years without checking the total interest.
!Not comparing a refinance with a HELOC or second mortgage.
Take action
Your first steps
1Ask your lender for the exact penalty to break your mortgage.
2Decide how much cash you need and what it is for.
3Estimate your home value.
4Gather your income documents.
5Start the intake so a broker can compare refinance, HELOC and second mortgage side by side.
The intake
What your application will ask
Your online application goes one topic at a time and saves every answer and document as you go, so you can stop and come back. It never runs a credit check, and a licensed mortgage professional reviews it and follows up.
For cash-out refinance borrowers
How much cash would you like to take out, and for what?
What is your estimated home value and current mortgage balance?
Who is your current lender, what is your rate, and when does your term end?
Do you know your prepayment penalty if you break the mortgage early?
What is your approximate household income and how is it earned?
What monthly debt payments do you have today?
Do you want to keep your current amortization or shorten it?
Plus the basics everyone answers 13
Your full name, email, mobile number and the best time to call.
The city you live in, and whether you are a Canadian citizen, permanent resident, or other status.
Are you applying alone or with someone else? If with someone, their name and how you are related.
Your goal: buy, refinance, renew, take out equity, or consolidate debt?
The property type (house, condo, multi-unit) and the city it is in.
Will you live in it, rent it out, or both?
The purchase price or estimated value, and your target closing or renewal date.
Your down payment or available equity, and where it comes from (savings, RRSP/FHSA, a gift, sale of another property).
Your approximate yearly household income before tax.
Your monthly debt payments: car loans, credit cards, lines of credit, student loans, support payments.
Your own estimate of your credit score: excellent, good, fair, poor, or not sure.
In the last 7 years, any bankruptcy, consumer proposal, collections, or missed mortgage payments?
May the broker contact you? (A credit check is only ever run later, with your separate written consent.)
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Answers
Questions people ask
How much cash can I take out when I refinance?
Generally up to 80 percent of your home value minus what you owe. Your income, credit and the property decide the final amount.
Is there a penalty to refinance?
If you break your mortgage before the term ends, yes. It is either three months of interest or an interest rate differential. At renewal there is normally no penalty.
What does it cost to refinance?
Typically an appraisal, legal fees and the penalty if any. Some lenders cover part of these costs. Ask for the full cost in writing.
Is the cash from a refinance taxable?
Borrowed money is not income, so it is generally not taxed as income. Tax rules can depend on how you use it, so check with your accountant.
Cash-out refinance or HELOC: which is better?
A refinance gives one predictable payment. A HELOC keeps your current mortgage as it is and gives flexible access. Your penalty, rate and goals decide.
Does starting the intake affect my credit?
No. The intake is just questions. A credit check is only done later, with your separate permission.
General information, not mortgage, legal or tax advice. Lender rules change and every application is reviewed on its own facts. Your application and documents are stored privately and go only to a licensed mortgage professional at Top Mortgages Inc; they are never sold, and no credit check is run without your separate written consent.