Mortgage Renewal Question

[cidley69]

Our 5 year fixed term 5.49% mortgage with 1st Calgary is due for renewal July 12, 2012.

I went to 1st Calgary and asked when is the soonest we can renew the mortgage. They said 90 days before July 12 it can be renewed at the current rate, but we could do it now for a "blended" rate.

My current mortage rate is 5.49%, they currently offer a 3.49% rate, and if I were to renew now they would give me 3.89% for another 5 year term.

Is this a good deal? Am I better off to go for this 3.89% rate now, or wait another 6 months and lock in for 3.49% (provided that's still the rate)?

Do I have ny bargaining power with them....if I threaten to go looking for another mortgage provided when my term is up, are they able to lock me in now for 3.49% for another 5 years, even though my original 5 years is not up?


Anyone have any other ideas regarding this situation?

Any thoughts from the Beyond financial/real estate wizards is much appreciated!

[skandalouz_08]

Find out what the payout penalty would be if you were to transfer your mortgage to another financial institution. Then do the math and figure out how much money you save/pay by switching your mortgage out to a 3.49% (I have a mortgage associate that can get you 3.39% on a 5 yr) rate compared to keeping your 5.49% until you can renew with your bank.

Then you make the decision if your bank won't bargain with you to switch it out for a lower rate and pay the penalty or tack it back onto your mortgage amount.

PM me if you need more info.

[cidley69]

The balance of my mortgage is roughly $380k.

What's the math on difference between 5.49% and 3.49%, in total interest paid per month or per year?

[nj2Type-S]

i'm interested as well. OP, our situation is similar. i'm curently in a 5 year term which ends august 2012. my rate is currently 5.69%. i have around $290k left in my mortgage.

[el-nino]

There are at least 6 different ways in calculating penalties. Each lender is pretty much different.
Your best bet is to call your lender and find out what that penalty would be. 3.39 is good! But there are better rates out there!

[cidley69]

Hey el-nino, about better rates, care to share, or give us some hints (wink-wink)....

[sputnik]

There are some brokers offering 5 year fixed rates at 3.29%

[yellowsnow]

If you keep your existing 5.49% rate, you're going to be paying around $10k in interest for 6 months. Blending the rate at 3.89% vs waiting 6 months and renewing at 3.39% is going to be a difference of about $1900/yr in interest alone.

If your pre-payment charge is less than $9500, it would be worth it to just transfer your mortgage to another OFI. (1900 * 5 years = $9500). Like el-nino said, there are better rates being offered… but this will give you a good idea what to expect hopefully.

[cidley69]

Hey yellowsnow,

thanks for the simpe yet logical answer. one more question....

based on the above, if the penalty is $9500, and I'd only be saving $9500, there's no point in getting out early unless the penalty is less than $9500?

[yellowsnow]

6 months of interest for $380k at 5.49% is about $10k.
6 months of interest for $380k at 3.89% (blended) is $7k.

So for the 6 months, you're saving $3k in interest if you blend it.

However, for the remaining term, you're paying an extra $1900 / yr in interest between 3.89% and 3.39%. So it wouldn't make sense to blend the rate right away because it'll offset your savings for the remaining term.

I'm thinking this through again.. and you shouldn't transfer your mtg unless the prepayment charge is under $3k. not $9500. because all you want to save is the 6 months of interest. Mortgage rates are probably not going to be increasing anytime soon.

i think that makes sense!

[tpurcell4]

You will want to verify your penalty with First Calgary, because banks tend to add back the discount they offered off of their posted rate from when you received this mortgage as well. Based on the calculation above of $9,500, if First Calgary calculates their penalty the same way scotia, TD, CIBC do, your true penalty may be closer to $13,000-$15,000. In which case, there is no way you could recover that over a year.

I have run some numbers for you in the attached spread sheet which will show you what the break down is. I had to make a few assumptions regarding your amortization and current payments (I assumed you started in a 40 year amortization as most did 4 years ago).

The "Current" Column is the standard to base your savings off of. I have not factored in the penalty to any of the columns, so the only true savings you will see is the 1st alternative option (the blended rate) at 3.89%, which you will actually see savings of almost $4000 since this calculation already factors in your penalty with the blended rate.

The 2nd and 3rd alternatives do not have the penalty factored in, so you will have to take the savings for these columns and subtract anywhere from $9500 to $15,000 to determine your true estimated loss.

Even, at a rate of 2.95% for 4 years, and saying your penalty is only $9500, you will have a loss in the first year of about $3700. So, if you really want to renew early, I would suggest, keeping an eye on rates, and if First Calgary's 1 year rate goes up, then rerun the numbers to see if it makes sense, or go with the blended rate option, you will decrease your monthly payment, get into a decent interest rate (seriously, 3.89% is still pretty good, historically) and save $3,800 to $4000 over the next 9 months.

The risk here is that rates do remain as low as they are now for the next 9 months, but you will lose almost $4000 not taking the blended rate now. Unless you want to take a gamble on what will happen to rates after the next 9 months, which is where the unpredictable savings or loss is.

Another option is going with a 2 year fixed at 2.49% right now, where, at $9500 in penalty, you will have a net savings of about $2225 over the next 9 months.

Just some food for thought!

Cheers,

Todd

[cidley69]

Hi tpurcell4,

Thanks for the info.

Here are some more concrete details:

Mortgage owing: $379,000
Current interest: 5.390%
5 year term expires: July 12, 2012
Penalty (calc'ed to Oct 15): $5684 + $200 fee

My options are (please chime in with any further ideas):

1. Do nothing and wait until my term expries and shop for best rate.

2. Lock in now (5 year fixed term) with 1st Calgary for blended rate of 3.89%.

3. Pay $5884 penalty/fee to terminate mortgage now and get new mortgage (5 year fixed term) with Scotia for 3.29%.

Does anyone know which of the above would be the best financial option?

Thanks.

[dr_jared88]

If I did my math right option 3 saves you the most. Somewhere in the neighbourhood of 5-8 grand over 5 years. So if you can pay the penalty, thats your best bet.

[Zewind]

Cidley, do you prefer the fixed rate mortgage?

[cidley69]

yeah, fixed rate has always seemed better to me.

Anyone else have thoughts on this?

[Tripz]

If you're interested in fixed rate, there's a fixed rate @ 2.99% fix for 4 years

[tpurcell4]

Originally posted by cidley69
Hi tpurcell4,

Thanks for the info.

Here are some more concrete details:

Mortgage owing: $379,000
Current interest: 5.390%
5 year term expires: July 12, 2012
Penalty (calc'ed to Oct 15): $5684 + $200 fee

My options are (please chime in with any further ideas):

1. Do nothing and wait until my term expries and shop for best rate.

2. Lock in now (5 year fixed term) with 1st Calgary for blended rate of 3.89%.

3. Pay $5884 penalty/fee to terminate mortgage now and get new mortgage (5 year fixed term) with Scotia for 3.29%.

Does anyone know which of the above would be the best financial option?

Thanks.

Hey,

I have attached a new sheet. Again I am assuming you started in a 40 year amortization. I have added a couple options to include the penalty in the new mortgage funds, but in these new scenarios, over the remaining life of your mortgage, it still looks like you are going to save the most going with the blended rate. However, after the 10 months is up, there will be the difference between locking in at 3.89% and either 3.29 on a 5 year or 2.95 on a 4 year. Because of the one year difference in term the 4 year looks less attractive because I can't run a true comparison.

But going with the 5 year at 3.29, over the next 10 months you would only save $428.85, but plus the addition savings over the next 50 months, your net savings would $4,954 over the full 5 years.

This amount versus the upfront savings on the blended would leave you ahead by about $300.

I hope this helps. Please PM me if you have any further questions.

Sincerely,

Todd

[cidley69]

Thanks for the thoughts on this.

My bank is willing to work with me a bit on this, and has aasked me to find the best rate currently available.

Can someone pm me what they think is the best rate and where its offered?

Or even better would be a website that lists the best rates.

Any help apprectiated, cuz it might save me real $$$$$$.

[guessboi]

Here is my mortgage broker's website.

Very competitive rates for sure.
I dealt with Bobby and did everything online with him.

Got variable -.8... last september.

I check it frequently and seen variable - 1.0 before.
Now fix is down and variable is up. so your call...I still prefer variable...

[link removed]

[masoncgy]

I just renewed my rental property at 2.49% for 2 year fixed... and increased my cash flow by almost $300 a month for the next 24 in the process...

Of course, that extra flow is going to be dumped back into the house in the form of some new windows & roof in the spring... but it was a good opportunity to do some needed updating!