Refinancing may be undertaken to reduce interest rate/interest costs (by refinancing at a lower rate), to extend the repayment time, to pay off other debt(s),to reduce ones periodic payment obligations (sometimes by taking a longer-term loan), to reduce or alter risk (such as by refinancing from a variable-rate to a fixed-rate loan), and/or to raise cash for investment, consumption, or the payment of a dividend.
In the context of personal (as opposed to corporate) finance, refinancing a loan or a series of debts can assist in paying off high-interest debt such as credit card debt, with lower-interest debt such as that of a fixed-rate home mortgage. Most fixed-term debt contains penalty clauses (known as call provisions that are triggered by an early payment of the loan, either in its entirety or a specified portion.
In addition, there are also closing and transaction fees typically associated with refinancing debt. In some cases, these fees may outweigh any savings generated through refinancing the loan itself. In essence, refinancing can alter the monthly payments owed on the loan either by changing the loan's interest rate, or by altering the term to maturity of the loan. More favourable lending conditions may reduce overall borrowing costs. Refinancing is used in most cases to improve overall cash flow.
CMHC is responsible for the housing industry in Canada. Its main duty is currently to ensure low cost mortgage loans are available to Canadians by providing insurance to lenders in case of defaults and homebuyer assistance. The borrower can pay lower interest costs when the loan is insured but the borrower has to pay the insurance premiums so it is uncertain as to whether the CMHC is helping the borrower reduce financing costs.
In Canadian English, the word government is used to refer both to the whole set of institutions that govern the country (following American usage, but where Britons would use state), and to the current political leadership (following British usage, but where Americans would use administration). For example a Canadian could be a government employee but never a state employee, and they would support or oppose the policies of the Harper government but never the Harper administration.
A home buyer or builder can obtain financing (a loan) either to purchase or secure against the property from a financial institution, such as a bank, either directly or indirectly through intermediaries. Features of mortgage loans such as the size of the loan, maturity of the loan, interest rate, method of paying off the loan, and other characteristics can vary considerably.
The agency was created in 1946 in response to housing demands after the return of World War II veterans and societal changes after the war included a policy that every family in Canada have their own home. Its role was to aid in the management and finance of housing projects in Canadian cities. It took over the assets of the Wartime Housing Ltd, that had built thousands of houses during the war. Upon creation, the Corporation was named the Central Mortgage and Housing Corporation.
In 1954, the federal government changed the National Housing Act. The amendment removed the federal government from the direct finance of housing projects, instead leaving mortgage financing to the banks. The banks began to issue mortgage loans. If the individual receiving the loan went bankrupt then the bank who gave the loan would not lose money, but instead would be reimbursed by the government. Now individual families in a multitude of salary ranges could afford to buy homes.
The CMHC provides assistance and guidance to the private sector in the building, design and planning of houses. Thus provincial governments have aligned their housing standards and planning practices along those of the CMHC. The CMHC also makes financial loans to cities at low and middle-interest rates for the development of housing projects. Thus, both the cities and provinces in Canada rely on the CMHC for the continuation of housing development in the areas under their jurisdiction.