Before you consider a mortgage refinance in Ontario there are few things you should be cautious of, the first and most important is your penalty. Many people are aware that if they break their mortgage they will incur a penalty, what they don’t realize is how high the penalty can actually get. In the past six months, mortgage brokers have been seeing penalties that have reached into the tens of thousands of dollars. You may be asking yourself, why would the penalties be so high all of a sudden?

The answer is complicated, but a simple explanation is, most banks charge a standard three-month interest penalty for breaking a mortgage, however, some banks charge an interest rates differential. This is a calculation that the bank uses that takes the difference in the interest rate from the day you signed your mortgage to today, they take the difference and charge that for the remainder of your term. Some banks will actually use the bond market to calculate that difference, and it is the fluctuations in the bond market that have caused the recent problems. Therefore, before you consider a low mortgage rate refinance make sure that your mortgage specialist first inquires about your penalty.

A professional mortgage broker will be familiar with the bank that holds your mortgage, and should be able to give you a rough estimate of what your penalty will be. Your mortgage specialist will be able to calculate whether it’s advantageous for you to refinance your mortgage. In many cases even with the penalty, it is still worth refinancing your mortgage because the savings are so high.

The other thing to consider about refinancing a mortgage is the value of your property. Unfortunately, because of the decline in the housing market in the United States, we have experienced a ripple effect here in Canada as well. Some areas of Canada have seen significant decreases in the value of their properties. The problem with that is that banks will not lend more than the value of the house, so when homeowners try to refinance their mortgage they discover that their house is now worth less than their original mortgage.

These occurrences are more prominent in the western provinces such as British Columbia and Alberta. The reason these provinces have experienced a larger decline in house values is because they experienced a much faster increase in house values, so in these provinces it can be more difficult to refinance. In Ontario, the house appreciation over the past few years has been more modest so if you are considering a refinance in Ancaster, Burlington, Brantford, Hamilton, Oakville, Mississauga, or any other city in the GTA you will be happy to know that the house values in these cities have remained strong.

The good news is because of the fluctuations in the housing market in Canada the banks are offering some amazing interest rates, so even with their penalties many homeowners are saving thousands of dollars by refinancing. It is important when considering a low mortgage rate refinance you utilize the services of a professional mortgage broker. A mortgage broker will offer you an unbiased opinion about whether it’s actually in your best interest to refinance your mortgage, and will advise you on such things as mortgage penalties, and refinancing. A mortgage broker will also find you the bank that is offering the best mortgage products and interest rates at this time.

Genwoth Financial Canada, one of Canada’s two mortgage default insurers offers its clients a program to keep them in their homes during difficult times. Please read the article below for more information. Every investment has a certain risk factor, and buying a home is no different. Economic downturn, illness, job loss or a death in the family can all lead to financial difficulties and the risk of mortgage default.

How can you minimize the risk?

Buy what you can afford

Make sure you buy a home that you can afford. Home buyers need to be realistic about their housing budgets. The size of the mortgage you obtain, the interest rate and the amortization period will directly impact your monthly mortgage payments. As a general rule, your mortgage payments and property taxes should not exceed 25 per cent to 30 per cent of your pre-tax income. When budgeting, plan for other home-related costs such as utilities, insurance, maintenance, and taxes. Mortgage planning tools are available online to help Canadians manage their loans.

Look for the best mortgage options

Find out who is offering the best mortgage terms and interest. If you understand the various rates and terms available you can determine the option that works best for your needs. Understand the implications of variable versus fixed interest rates.

Build a monthly housing budget

Do you know where your money goes on a monthly basis? Once you are in your home, you should develop a budget to track your expenses, including all home-related items such as utilities, property insurance, taxes and a reserve for maintenance. Make sure to leave some room for unexpected expenses.

Insurance options

Think about protecting your investment. In addition to basic home/fire and title insurance, there are life insurance and mortgage life insurance options available so that the loss of a loved one doesn’t create financial instability. Some organizations also offer mortgage insurance for disability, critical illness or loss of employment. The cost of these options should be included in your debt servicing calculations.

In the event you encounter financial hardship during the life of your mortgage, Genworth Financial Canada (formerly GE Mortgage Insurance Canada) has a proven default management program to help provide temporary financial assistance for qualifying borrowers. To access this program, consumers should contact their lending institution immediately and ask about Genworth’s Default Management program.