Renewing mortgage before term is up.

[16hypen3sp]

Hey all,

I received a phone call from a mortgage specialist from my local bank (well, credit union). This bank is where my mortgage has been from the get-go. She told me that they are offering mortgage owners an early renewal because the prime lending rates are climbing. My mortgage is up for renewal in 10 months. I had locked in at 5 years previously for 2.99%. She said if I renewed now, it would be the same rate. The only reason to renew now is mitigate any further lending rate increases down the road.

This is my first mortgage and first time renewing. I don't know much about it.

It sounds like I should take the offer and renew now instead of risk it and see a further rate increase.

Any advice?

Thanks.

[suntan]

Most places can't hold for more than 120 days, best rate right now is 2.56% on a 5 five year.

Question is do you think rates will go 40 basis points in six months?

[ExtraSlow]

They want you to renew before your term is up and not shop around. This is pretty common practice. Often you can negotiate that rate a little more, particularly if you have a quote from another lender for lower.

People hate to change lenders, it's a hassle, but you should at least pretend to be shopping around when negotiating your renewal rate.

[BokCh0y]

Some places like first calgary is offering a promo rate at 2.79%.

[tonytiger55]

They want to retain your business and not have you shop around. Negotiate as stated above.

That being said, if you do shop around you may have to pay fee's for a new mortgage which may make it unviable.

[suntan]

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They want to retain your business and not have you shop around. Negotiate as stated above.

That being said, if you do shop around you may have to pay fee's for a new mortgage which may make it unviable.

He's renewing, the expectation is that all fees are covered by the new lender.

[thinmyster]

I'm due in about 10months also (with street-capital). Haven't heard shit

[16hypen3sp]

Ok guys. Thanks for the replies. I'll see if they move on the rate or not.

[ExtraSlow]

Most lenders that want to earn your business away from your current one will cover all fees. That's pretty common.

[tonytiger55]

That was my thoughts too.
It did not work with my friend who had their mortgage with BMO. New lenders would not cover it, even our broker suggested staying with the current lender.

[Xtrema]

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Most places can't hold for more than 120 days, best rate right now is 2.56% on a 5 five year.

Question is do you think rates will go 40 basis points in six months?

Listen to this man, there is no point renewing early if that's what you most likely get in 6 months anyway.

I just got 2.64 2 weeks ago from RBC. Given it's before the news of rate hike but renewal is also less risky then a new loan. If they are a credit union, they should be able to beat RBC. So I would say close to or under 2.6% before you bite.

[Buster]

you sure you want to go fixed?

[Xtrema]

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you sure you want to go fixed?

You think fixed will go lower in the future? Or do you think rates hikes are fake?

[HiTempguy1]

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You think fixed will go lower in the future? Or do you think rates hikes are fake?

Well, you can still get variable for 2% so you tell me? For the past two decades, variable has basically always worked out to be cheaper. I locked in because I am risk averse, but I'm pretty happy with my 2.54% for 5 years now.

[suntan]

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Well, you can still get variable for 2% so you tell me? For the past two decades, variable has basically always worked out to be cheaper. I locked in because I am risk averse, but I'm pretty happy with my 2.54% for 5 years now.

The problem is where are rates going to be in six months.

Variable is even worse for holding, usually they're only 60 days. So it's great and all that you can get it right now, but what about in 8 months?

[Buster]

A fixed rate is a bet against the traders at the bank that rates will not go up past XX.XX%.

Do you think that the traders at the bank that are setting these rates know LESS than you do about where rates will go? It's these peoples' job to determine what the probability is of a profit based on a particular rate at retail. If rates had a higher likelihood of going up (as is suggested here), then you would see an even steeper spread between variable and fixed rates.

Furthermore, the fixed rates are determined not by one trader at one bank, but the market determines the fixed rates. So the fixed rate you're looking at is actually the blended consensus of the predictions by all of the smart traders at all of the retail banks across the country (and world really) about what rates will look like.

And yet, we think that we can determine, objectively, that they are wrong? Sometimes they are. But it's relatively rare, and your chances by luck of hitting one of those times just when you happen to be renewing your mortgage is quite unlikely.

[jutes]

Regarding this, I still have about 2 years left before my current 5 year term is up. I'd like to put down a substantial amount to lower my payments, because if I just put this money down on the mgt it will decrease length of the amortisation, not monthly payments. Would there be any penalties if I refinance early or does it depend on my lender - TD?

[Xtrema]

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Regarding this, I still have about 2 years left before my current 5 year term is up. I'd like to put down a substantial amount to lower my payments, because if I just put this money down on the mgt it will decrease length of the amortisation, not monthly payments. Would there be any penalties if I refinance early or does it depend on my lender - TD?

Check your contract. There are clauses about how much principle pay down you are allowed per year, so while payment doesn't change, amortization decreases and more of your payment will go toward principle. As for refinances early, it really depends variable or fixed. Variable to fixed usually is kosher without extra charges (because you are paying 0.5% more = more profit for the bank). Fixed to fixed usually has some penalty involved.

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A fixed rate is a bet against the traders at the bank that rates will not go up past XX.XX%.

Do you think that the traders at the bank that are setting these rates know LESS than you do about where rates will go? It's these peoples' job to determine what the probability is of a profit based on a particular rate at retail. If rates had a higher likelihood of going up (as is suggested here), then you would see an even steeper spread between variable and fixed rates.

Furthermore, the fixed rates are determined not by one trader at one bank, but the market determines the fixed rates. So the fixed rate you're looking at is actually the blended consensus of the predictions by all of the smart traders at all of the retail banks across the country (and world really) about what rates will look like.

And yet, we think that we can determine, objectively, that they are wrong? Sometimes they are. But it's relatively rare, and your chances by luck of hitting one of those times just when you happen to be renewing your mortgage is quite unlikely.

End of the day, variable is 2%, fixed was 2.5/2.6%. All you are betting on is that Bank of Canada won't raise 0.5% over the next 2 years. If they do, fixed wins. If they don't variable wins.

[Buster]

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End of the day, variable is 2%, fixed was 2.5/2.6%. All you are betting on is that Bank of Canada won't raise 0.5% over the next 2 years. If they do, fixed wins. If they don't variable wins.

Not quite. How early they raise matters a great deal in terms of who wins in the bet/trade. For every month that you pay the lower interest you are accumulating capital (which then has a time-value all its own). For you to lose on going variable, the bank must raise rates PAST the current fixed rate, and by a significant amount. Let's say the BoC raises rates 50 basis points over the next to years, at the end of that period, you have saved the interest in the meantime. So for the next two years, they must raise rates PAST where the existing fixed rate is in order to be able to "catch up" and eclipse your cost savings. So going fixed isn't a bet that they will raise 50 basis points within your term, it's probably a bet that they will raise them 100 basis points or more.

More to the point: the vast majority of experts (ie people with huge amount of capital and a lot at stake), all seem to agree that this is somewhat to highly improbable. You going fixed is essentially the admission that you think they are wrong. They are rarely wrong. Their job is to make you feel more secure by purchasing what is essentially an insurance policy. A very expensive insurance policy.

[realazy]

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End of the day, variable is 2%, fixed was 2.5/2.6%. All you are betting on is that Bank of Canada won't raise 0.5% over the next 2 years. If they do, fixed wins. If they don't variable wins.

However, if you get 1 year before they raise it 0.5%. You're already ahead because you saved that 0.5% for that 1 year. Then if variable at that time is at 2.5% you're still only even going forward.

The BOC is raising rates 0.25% at a time. You'll still be ahead with variable unless they raise it 1% in one year and continue to do so afterwards.

The market consensus is that they have to tread carefully on rate increases and the likelihood of a rapid rate increase is low.