Renewing your mortgage early can have many advantages especially in the current markets. There are many things to consider before making this financial decisions and seeking professional advice from a mortgage broker is a good decision.
Should You Make the Move?
First let us look at the decision to make the move, will it save you any money in the long run. Changing for a small percentage may not be worthwhile but today’s markets are at an all-time low and locking back in for 5 years instead of waiting until the end may be to your advantage. If your mortgage is over 3% and the new rates can be as low as 2.59% then the savings may be worthwhile.
How is the Mortgage Renewal Penalty Calculated?
Penalties vary from lender to lender so you need to see if they are going to charge you a simple three months penalty or if they are going to use the penalty known as interest rate differential or IRD. This complicated calculation involves such things as comparing your existing rate to the bond market or to the companies posted rate for the amount of time left on your mortgage. A simple version is this, you have 3 years left on your mortgage at 3.1% and the posted 3 year is 3.65% and the mortgage is $100000. Simple math would be .55% times times 2 yrs times 100000 dollars would equal the penalty.
Should You Consider Transfer of Title?
In many cases if there is enough equity our lenders will allow you to renew with them and capitalize up to a certain amount to cover fees and add them into your mortgage. They will also offer you a service that allows you to save money on legal fees as the renewal is done either at the branch or through a company called FCT which is First Canadian Title and they will facilitate the renewal of your mortgage in your home. They will transfer title to the new lender and allow you to save any legal fees.
What is your Current Mortgage Lender’s Fee?
Renewing your mortgage can be a simple process provided your current lenders fees aren’t too high. The savings per month between 3.5% and 2.59% is 48 dollars per every 100000 dollars of mortgage. So if you have a 400000 dollar mortgage it’s a 192 dollars and you would save that for 60 months or 11520 dollars with just simple monthly payments.