Lowering your current Mortgage rate

[Marek2086]

Hi There

I was wondering if anyone out there was refinancing their property during a fixed term mortgage. We are disappointed with Soctia since at first they told the penalty would be $6,000 than once we made the appointment she figured it would actually be $11,600 at that time the rates were to drop and we wanted to know if it made sence to wait a couple of week to get a better rate the bank agreed it would be worth the wait, but never told us that the penaly would increase to $14,800. Now the rates have dropped again and I would expect the penalty to be at least $2000-$3000 more. One of our mortgages is at 5.79 and our term expires in 3.5 years the best blended rate they offered was 5.44 and we would have to sign a new 5 year term at that rate. Or is it better to pay the penaly and go for a 3.5 fixed for 5yrs. We would prefer just use the 16k to purchase another propery. Any thought please and thank you.

 

[PeterKinchMortgageTeam]

QUOTE (marek5 @ Apr 15 2009, 01:47 PM) Hi There

I was wondering if anyone out there was refinancing their property during a fixed term mortgage. We are disappointed with Soctia since at first they told the penalty would be $6,000 than once we made the appointment she figured it would actually be $11,600 at that time the rates were to drop and we wanted to know if it made sence to wait a couple of week to get a better rate the bank agreed it would be worth the wait, but never told us that the penaly would increase to $14,800. Now the rates have dropped again and I would expect the penalty to be at least $2000-$3000 more. One of our mortgages is at 5.79 and our term expires in 3.5 years the best blended rate they offered was 5.44 and we would have to sign a new 5 year term at that rate. Or is it better to pay the penaly and go for a 3.5 fixed for 5yrs. We would prefer just use the 16k to purchase another propery. Any thought please and thank you.

Before you make any decisions, ensure that your banker has run some accurate mortgage comparisons. I suspect that your interest savings alone over the remainder of your term would probalby make it worthwhile to pay the penatly, and in addition you`d be taking advantage of signifigantly lower monthly payments (or signifignaltly increased prinicpal paydown).

They may be able to refinance the penalty into the new mortgage so its not an out of pocket expense, but its important that you have and understand the amoritization schedules comparing the rates/products before you make a decision.

Thanks

 

[DaveRhydderch]

A different suggestion for you, but I recommend trying to get all or some of that penalty waived. Get to the decision maker, and push hard. If you have been a solid customer, have good credit, multiple mortgages with them, going to get another mortgage, etc and see what you can do. Go in prepared and know that banks can do this. Show them how its a win-win situation, and if they won`t go for it, see if somewhere else will (note transfering a mortgage is a little painfull).

Like the CMT said, it probably is worth your while to pay the penalty, but I say try and get out of that. The banks do do it, so why not with you?

 

[PeterKinchMortgageTeam]

QUOTE (DaveRhydderch @ Apr 16 2009, 09:19 AM) A different suggestion for you, but I recommend trying to get all or some of that penalty waived. Get to the decision maker, and push hard. If you have been a solid customer, have good credit, multiple mortgages with them, going to get another mortgage, etc and see what you can do. Go in prepared and know that banks can do this. Show them how its a win-win situation, and if they won`t go for it, see if somewhere else will (note transfering a mortgage is a little painfull).

Like the CMT said, it probably is worth your while to pay the penalty, but I say try and get out of that. The banks do do it, so why not with you?


Another way to reduce your penatly is to take advantage of your prepayment priviledges. If you can prepay the mortgage by the allowable percentage (ie 20%), you`ll reduce your penatly by 20%.

Also be cautious when the bank says they`ll cover your penalty, as they are not in the business of giving money away. More often than not, they will offer to cover your penatly, but will charge up your rate. If you paid the penalty yourself, you may be able to get a rate of 3.85% but if you tell the bank you want them to cover the penalty, they may charge you 4.35% and not tell you that the 3.85% would have been an option

May still be a better deal, but you really need to know both options, and have mortgage comparisons be able to make a decision.

 

[DaveRhydderch]

On another forum, an individual made a spreadsheet to figure how much it should cost to break your mortgage. Its http://www.redflagdeals.com/forums/showthread.php?t=703086

and its the 8th post down. I haven`t checked the spreadsheet myself, but should give you a good place to start.

 

[Marek2086]

thank you for your input. I appreciate it.

 

[lyndsy]

Thanks for that spreadsheet!

 

[Thomas Beyer]

QUOTE (marek5 @ Apr 15 2009, 02:47 PM) Hi There

I was wondering if anyone out there was refinancing their property during a fixed term mortgage. We are disappointed with Soctia since at first they told the penalty would be $6,000 than once we made the appointment she figured it would actually be $11,600 at that time the rates were to drop and we wanted to know if it made sence to wait a couple of week to get a better rate the bank agreed it would be worth the wait, but never told us that the penaly would increase to $14,800. Now the rates have dropped again and I would expect the penalty to be at least $2000-$3000 more. One of our mortgages is at 5.79 and our term expires in 3.5 years the best blended rate they offered was 5.44 and we would have to sign a new 5 year term at that rate. Or is it better to pay the penaly and go for a 3.5 fixed for 5yrs. We would prefer just use the 16k to purchase another propery. Any thought please and thank you.
As the interest differential increases the bank`s profit on the locked-in mortgage drops .. thus, their penalty grows .. BUT: you also save more !

Scotia is one of the better lenders out there !

You decided to break an existing 5 year contract you chose to sign 1 1/2 years ago !

Pay now .. or pay (more) over the next 3 1/2 years .. your choice !

 

[MikeMcCrae]

Thomas as always makes some great points. Most people go to their mortgage broker looking for "the best rate" rate is just 1 of many factor in determining the best mortgage. Lenders calculate payout penalties differently some going posted to posted or posted to bond or many other configurations. It is so important to have a plan and discuss it with your mortgage professional. Do remember that you are signing a contract. Understand what that means so that when you try to change the terms you realize what the deal is and it so often seems that you get what you pay for.
Pay now .. or pay (more) over the next 3 1/2 years .. your choice !