PROPERTY ASSESSMENTS AND REFINANCING
One can have a big impact on the other.
Most people associate getting that property assessment in the mail with property tax season. While they’re inevitably linked, that assessment can also have a big impact on your finances if you’ve been thinking about refinancing your mortgage.
In 2012, the Canadian government cut back the maximum loan to value on refinances. What that means is that people who already own a home and want to borrow more money against it are only permitted to borrow up to 80% of the home’s value. For example, if you have a house worth $500,000 that has a mortgage of $300,000 (60% loan to value), you would be able to borrow up to a maximum of $100,000 more leaving you with a mortgage of $400,000 on your $500,000 house (80% loan to value). If you’ve already got a mortgage and would like to borrow further, the value of your house becomes very important as it determines the amount of extra funds that you’ll have access to.
Property assessments commonly come in below the actual market value of a house, meaning your assessment may say $350,000, but a buyer in your area might pay up to $400,000. The degree to which they vary depends on the strength of the market and how in demand your particular type of property is. By consulting with a realtor who knows the local market, you can get an idea of what your home might sell for. While this is not enough proof for a lender, it does give you an idea if it’s worth it to have your house appraised.
An appraiser will take into account all of the things included on the assessment such as land value and property size, but he or she will also consider the market. Appraisers typically find 3 or 4 recently sold properties that are similar to the one under consideration and then use those “comparables” to help determine the fair market value of your home. If your home is quite unique, then the expertise of an appraiser becomes even more important. The cost of an appraisal will vary from company to company, but is generally in the $300 range. This small investment can make a significant difference in how much money you can access from your home in a refinance. If you’re considering a refinance, but are not sure if it’s worth taking out more funds, a conversation with your broker can help you weigh the options.