Mortgage Renewal

[smack123]

Yet another question from the novice....

The mortgage on my rental property is up for renewal in September, 2010 (17 months from now). It is a 5-year fixed at 4.4% with 18 years remaining on amortization.

I understand that I will not need to re-qualify in order to renew this mortgage, that RBC will (assuming payments are up-to-date) simply send me a renewal form, and that other than contacting my account manager to ensure that I am receiving the best interest rate deals, it will simply be ametter of signing off to renew.

1. Now, this mortgage was obtained (approx. 4 years ago) when this was my principal dwelling. Since then it has become a rental property. My question is whether or not I can renew BUT with a longer amortization, thereby decreasing my monthly payment and increasing cashflow. Currently my mortgage opayment is approx. $1100 per month, while a re-amortization at 35 years would drop it to approx. $750/month.

2. At what point would it make sense to pay the penalty in order to renew this mortgage at current low rates. 5-year fixed can be had at 4.25% I beleive my penalty would be roughly $1800 (3 months interest) My concern is that a 5-year fixed might be back up to 5-6-7% by Sept. 2010, at which time paying a $1800 penalty would have looked damn good to secure a 4.25% mortgage for 5 years.

3. Also, can someone discuss the concept of an interest only mortgage. Obviously I understand what it is, I`m curious though as to how one can be obtained, what sort of conditions may be applied, etc.

4. FINALLY, one additional question... in the interests of maximizing cash-flow, how many of you take advnatge of the opportunity to do the "skip-a-payment", where opnce every 12 months you can "skip" a monthly payment.. again with a thought towards increasing cashflow.

As always, I look forward to and appreciate feedback!!

 

[kboughen]

QUOTE (smack123 @ Mar 24 2009, 06:48 PM) 2. At what point would it make sense to pay the penalty in order to renew this mortgage at current low rates. 5-year fixed can be had at 4.25% I beleive my penalty would be roughly $1800 (3 months interest) My concern is that a 5-year fixed might be back up to 5-6-7% by Sept. 2010, at which time paying a $1800 penalty would have looked damn good to secure a 4.25% mortgage for 5 years.
I recommend you start by finding out exactly what the penalty is to break the mortgage, you currently have a relatively low rate at 4.4% so the good news is it should not be a big expense to break the mortgage. You can then add the penalty to the mortgage amount and run an amortization schedule to see exactly what the numbers are with your new mortgage amount and interest rate Vs the current mortgage amount and interest rate (your mortgage broker can do this for you). Since you don`t know what the rate would be in 2010 if you stay as is, you can`t determine exactly what will be saved over the next 5 years, however, you would have the definite benefits of increased cash flow with the 35 year amortization and a great rate locked in till 2014.

 

[RobMacdonald]

1. Increasing your cashflow is never a bad thing, but you also need to consider what your longer term goals are. If you don`t require additional cashflow to subisdize your income, then maybe accelerating the mortgage pay down can be a good strategy for you. In order to renew and increase the amortization, you would probably have to re-qualify for the mortgage. Depending on your personal income and expenses, this may not be an issue.

2. It would be a good idea to consider your options now. Fixed rates on 5 year terms are now approaching 4%. You would save on your current interest rate, but more importantly you could lock in your savings for an extended period.

3. An interest only mortgage is a HELOC, or Home Equity Line of Credit. Most of the major banks has this as a mortgage option. RBC has the Moneyline, Scotiabank has the STEP, HSBC as the Equity Power to name a few. These products give you an option of having a mortgage and/or line of credit combination. I would highly recommend you convert your mortgage in the process to some type of product that is re-advancable like a STEP or Equity Power mortgage.

4. Skip a Payment is not available with every lender, but it never hurts to ask. I think you would find that most investors would take the opportunity if it was presented.

Good luck with RBC, and don`t forget to shop around!!