Mortgage Advice - Break and pay and sign at lower rate? = save?

[Entropy]

I'm thinking of breaking my current mortgage at 4.23%, paying the penalty for breaking a year early, and then signing a 5 year fixed rate at 3.35%.

 

Any insight on this or mortgage rates in general?

 

What are you doing with yours?

 

Entropy

[Joey]

I just had the option of 2.50% variable or 2.99 fixed at BMO.

[Burtess]

I am (and have been in for quite a few years now) in a variable with TD Canada Trust.... Prime - 0.4% = 2.6%. I don't see the prime going up in the next couple of years so this is where I will stay.....

 

Burt

[Rod Caster]

Do the math. If you save $, then do it.

 

What if you took the cost of the penalty you are willing to pay and just put it against your mortgage right now? I bet in the long run that would save you more $ than a lower rate for 5 years...especially if you are early in your amortization and you are paying a lot of interest vs. principal.

[BillM]

Depends on how much the penalty is.... I'm currently on a variable prime - 0.75%.. My payments are based on a 8% rate though so I pay the principle down quickly... 5 more years and I'm mortgage free. w00t!

[Garnet]

It's just math.

 

When you take in all cost I don't think the savings will be worth your time.

 

You likely would be better off to apply cost of breaking your mortgage to your principle.

[mcdougy]

Are you thinking of whole new mortgage or just resigning your 5 year term? New mortgage is extremely interest heavy in the beginning meaning you pay little to no principle. Getting out of your term and resigning a new term is more than likely a wash if there is a penalty. IMO I would consider going variable for a bit for a larger gain if possible, there may be no penalty for doing so. Set up a appointment, talk with the bank, get them to show you the advantages/disadvantages to certain scenarios. then go to bat and ask for a bit more if it seems appropriate. They will put the math in front of you. Take it home and check it out before signing anything.

[pairofgreenhorns]

I'm thinking of breaking my current mortgage at 4.23%, paying the penalty for breaking a year early, and then signing a 5 year fixed rate at 3.35%.

 

Any insight on this or mortgage rates in general?

 

What are you doing with yours?

 

Entropy

I just bought a house two weeks ago and it was easy to find a mortgage for 2.94% 5 year fixed through a broker, i would never use a bank.... 2.89 fixed was easy to find about 5 months ago and 2.99% is most common now for a low rate. So see if you can get that and then do the math.

[Salmonidstalker]

For the eager home owner that wants to pay off their debt quickly (10-15 years) the best tool is the Manueline one account hands down. Mortgages usually eat up any increase in value of your homes after 25 years. If you like the mortgage type format where you make your set payment every month, then that's the way you should go but boy do people pay for that!

[Tim Mills]

Try and get the new lender to pay any penalties or fee's you may have to pay to break your current mortgage. It doesn't hurt to ask.

[solopaddler]

 

You likely would be better off to apply cost of breaking your mortgage to your principle.

 

Exactly what I was thinking.

[fisher]

If you decide to break it, just before you do, borrow from a line of credit the maximum amount prepayment you can apply to your mortgage (usually 15% of original balance) and do so. This way the penalty will actually be less since your mortgage balance will be lower. Then when you get the new mortgage, get an amount just enough to pay off your new mortgage balance plus line of credit. This should save you some bucks.

Edited March 26, 2014 by fisher

[adempsey]

With one year left, I'd guess it probably wouldn't benefit you much, if at all. However, without doing the math nobody can really help you. The bank will not be doing you any favours though. That I can guarantee. Probably better off shopping around after your mortgage is up for renewal.

 

Also, as mentioned, a broker isn't a bad route either. It doesn't cost you anything. I'd recommend using at least three brokers, since I believe they basically have one main bank connection where they can get a good rate. The other bank rates they show you are just typical rates for comparison and are there to make their "connection rate" look even better. However, it is always best to deal directly with the bank if you have the ability to negotiate or have a good relationship with someone there.

[ch312]

ING Direct, now called Tangerine, was absolutely awesome when I had a mortgage as are zero penalties and you can pay off 25% of the principal each year. The best part was I did everything from home (email, fax, phone) without having to visit a bank. I'm not sure what their current rates are, but they are definitely who I will be using when we buy our next home.

 

I'm really looking forward to using the equity in our current home as a large down payment for our next home and letting the future tenants of our current home pay off our maxed out HELOC for us. Nothing beats letting someone else pay off your debt

 

 

Being mortgage free is a mighty fine feeling and definitely allows you to sleep better at night.

Edited March 26, 2014 by ch312

[Headhunter]

Wait 6 months, then approach a number of lenders, letting them know that you are in the market for a long term mortgage. I bet some of them would be willing to absorb any fees attached to your current agreement, in order to secure your long term mortgage. (5 years). Most may have an issue with fees for a 12 month early renewal.

And I agree with what others have said, any money you were willing to use to pay fees to get an early renewal would be better used to lower your principle as opposed to lining the banks pockets.

 

Side note- I treat banks just like any other business that is getting my $$$. I want what I want and I let them know that I am more than willing to go elsewhere, with all my business should they not be able to meet my demands. Banks aren't doing me any favours, I am favouring them by giving them my business... I'm not saying that this is the case here, I just find too many people approaching banks on bended knee thinking they are doing me a favour... and we all know what happens when we bend over!

HH

Edited March 26, 2014 by Headhunter

[Entropy]

good stuff guys. I talked to my $$$ guy at manulife and he suggested the one account, but not sure of that. They said go for 3.1% and offered to hold my mortgage for 3.1% and/or even call my bank and negociate on my behalf, even without getting my business.

 

Entropy

[woodenboater]

We went variable and lucked into long term low rates. If you're risk averse, variable may not be your thing but it's probably something to consider regardless.

 

BMO has cut their mortgage rates today and are offering five years fixed at 2.99%. My guess would be similar action from the other banks as spring approaches and people start looking at homes in earnest.

[The Urban Fisherman]

We were at %6 with more than 2 years left on a 5 year mortgage... Took a huge penalty but scored a 10 yr. deal locked in at 2.99 %... it hurt pretty bad short term, but over 10 years we're saving a ton...

 

like some people said, find the best rate you can find, do the math and if it's better off go with it.

 

We could have gotten 2.50% over 4-5 years but we figured 2.99% for 10 years is pretty tough to beat... and if rates skyrocket in the next 5-8 years it won't affect our mortgage payment which is sweet.

[Salmonidstalker]

We were at %6 with more than 2 years left on a 5 year mortgage... Took a huge penalty but scored a 10 yr. deal locked in at 2.99 %... it hurt pretty bad short term, but over 10 years we're saving a ton...

 

like some people said, find the best rate you can find, do the math and if it's better off go with it.

 

We could have gotten 2.50% over 4-5 years but we figured 2.99% for 10 years is pretty tough to beat... and if rates skyrocket in the next 5-8 years it won't affect our mortgage payment which is sweet.

If rates sky rocket your home value will decrease substantially. Your mortgage could be more than what your home is worth. In which case you would pay in a much less sweet scenario.

 

At the end of the day mortgages aren't there to help you get what you need, they help get what you want. And in 25 years, you've probably paid double what your house is worth. Get a line of Credit, pay your debt off fast....that is your sweet scenario!

[pairofgreenhorns]

For the eager home owner that wants to pay off their debt quickly (10-15 years) the best tool is the Manueline one account hands down. Mortgages usually eat up any increase in value of your homes after 25 years. If you like the mortgage type format where you make your set payment every month, then that's the way you should go but boy do people pay for that!

or pay monthly and just accelerate your mortgage, my parents paid off their 30 year mortgage in 14 years.

[The Urban Fisherman]

If rates sky rocket your home value will decrease substantially. Your mortgage could be more than what your home is worth. In which case you would pay in a much less sweet scenario.

 

At the end of the day mortgages aren't there to help you get what you need, they help get what you want. And in 25 years, you've probably paid double what your house is worth. Get a line of Credit, pay your debt off fast....that is your sweet scenario!

 

I agree %100 but it isn't that easy for all of us.... Sometimes 25 years at the best rate you can get is the only option.

 

We're a young family on a tight budget at the moment, with student loans, young kids etc, so 2.99% for 10 years is good for us right now. This gives us the time we need to pay off our student debts and get ahead with our careers, saving money etc. without having to worry about our mortgage payment doubling overnight. In which case, we would lose our house. We're trying to pay a mortgage, our own university debts and save for our kids to go to school at the same time.

 

We built a new 4 bedroom 1600sq foot house with a 2 car garage and finished basement for $230,000 and put $20,000 down on it. In ten years from now we will have paid off enough on our mortgage that it doesn't matter what the rates are, chances are our home will always be worth more than what we owe. It'd have to be a pretty severe increase. We're also lucky enough to live in a rural area that isn't affected by fluctuating rates near as much as in the city. Houses are so cheap around here that lower rates don't generally mean cheaper houses... they're already as cheap as they can be built or sold - so when rates go up, prices don't typically go down either - people just stay put. As they go up, houses just don't sell, when rates go down around here, houses start to sell but not at inflated prices. We don't have bidding wars, or multiple potential buyers or anything like that. I know that in the end we would pay something like $500,000 for our home that had a price tag of $230,000 to build. I think it's robbery on the bank's part, but this is what I can afford right now. We're hoping to change things up after 10 years but right now this is the best scenario for us.

[aplumma]

Taking a long term mortgage atfor a better rate is not a bad thing. You have the option at that time to pay the minimum amount monthly but you can also add extra to pay it down quicker. Most people pay the least amount they are told to pay not because there budgets are maxed but because it is the number they like so they have extra money. The extra money is a long term loan at the % of the mortgage and it is a money trap that you don't feel. Most people who have a payment can easily put an extra 10% every month but don't because it means sacrificing some of life's joys of spending money. Having money in the bank at the level where you are comfortable is a good idea but while it is paying a minimum in return the amount not paid back on loans is eating away at it at the percentage of any loans. Paying down the highest % of your loans is the first step towards getting finances under control.

 

Look hard at your finances and get professional help setting up a budget will go far in getting your finances under control.

 

Art

[Entropy]

Well it looks like our penalty is higher than the savings would be, at this time. As it stands the best thing to do is renew 120 days early on Dec 27 of 2014, and in the mean time hope rates don't go up, and spend some money on improving our house. Siding, windows and roof are all very needed. After looking at the numbers, it was more than clear what to do.

 

Thanks.

Entropy

[Garnet]

If you want to do something.

 

Apply that penalty to your mortgage. The whole amount comes off your principle and you save the interest for that month.

 

In addition to that your money works that much harder for you. After 4 years on weekly mortgage that's payment 192 and your penalty money apply you likely will drop to payment 240.

[ch312]

Well it looks like our penalty is higher than the savings would be, at this time.

 

Shoulda went with ING