When you’ve got “rate envy”, does it make sense to refinance?
Who would have believed that mortgage rates would have such a continued downward trend? Mortgage shoppers are looking at some of the lowest rates in history, and many homeowners with existing fixed-term mortgages are experiencing some “rate envy” about today’s rock bottom rates.
It might be worth a conversation about your options. Typically, we think of a fixed term mortgage as a non-negotiable contract. And it’s true that there are financial penalties to re-negotiate. But, many clients have been asking for a mortgage analysis – a detailed look at the penalties versus the payoffs – to determine whether it’s worth refinancing.
What does it cost to get out of your existing mortgage? Generally, you can expect to pay the greater of either a) three months’ interest, or b) the interest-rate differential. The interest rate differential can be high in some cases; your mortgage lender will expect you to pay them the equivalent of what they will lose by releasing you from your mortgage and lending the money at current rates.
So is it worth it? For some homeowners it can be an important moment of opportunity, while for others, it may not be worth the costs involved. Most lenders will include the cost of the payout penalty and other costs into the new mortgage so you don’t have to be out of pocket to complete the transaction. I would be happy to help you make a realistic assessment of your situation and help you determine if your benefit outweighs the cost. With rates where they are today, there’s never been a better time to talk.
3 things that do or don’t change with a Bank of Canada rate cut.
- The prime rate in most cases will change, but lenders decide how much of that cut they will pass on to consumers, if any. If you have a variable mortgage, you are now paying less; sixty per cent of the two recent cuts are now reflected in lower variable rates. Take advantage and keep your payments the same so you pay off your principal faster.
- Fixed rates don’t, they are influenced by the bond market.
- Variable mortgage approvals don’t, they are based on a qualifying rate, which means your borrowing power likely won’t increase.
Thinking of fall’ing into homeownership? Let me help determine how much home you can afford and pre-approve you before you start shopping. We’ll also discuss downpayment options and all of the costs associated with buying a home. Don’t be tempted to rush into anything just because the holiday season approaches so quickly. It’s best to make sure you find the right house and stick with your budget. If you are thinking of jumping into homeownership this fall, let’s have a conversation!