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The-Mortgage-Gal

Refinance your mortgage?

 
Canadian Mortgage rates are low and could be dropping down in time for the spring market following a drop in the Bank of Canada Rate on January 21 by 1/4% which will save new buyers and those with mortgages up for renewal on their home costs.  If you have a variable rate mortgage your rate will have already been reduced by .15% as most lenders lowered their Prime lending rates in February to 2.85% from 3.00%. With lower rates still to come, does it make sense to get our of your current mortgage and get a lower rate?  There are three questions to consider.
 
1. How much is my penalty?
 
Penalties are part of the mortgage contract signed with your lender and prevent certain actions.  Mortgages with variable interest rates usually only have a penalty equal to three months interest but sometimes there are reinvestment fees.  Fixed rate mortgages are more difficult to calculate and can be several thousand dollars.  Most fixed rate mortgages have a penalty that is usually the greater of three months interest or the interest rate differential.  The Interest Rate Differential (IRD) is the rate used to calculate the loss that the lender would incur to replace the mortgage at today's lower rates.  The IRD is based on the term remaining and the posted interest rate at the time the mortgage was obtained.
 
2.  How can I calculate the IRD penatly?
 
There are online calculators that will ask for all the details of your mortgage including the original rate, balance and term remaining.  These are good approximations but to get a more accurate calculation it is best to contact your lender directly.  Sometimes you can take advantage of an unused prepayment of the principal to reduce the penalty as long as it is not within 30 days of the payout.  This will lower your IRD.
 
3.  Will I save enough money with my lower rate?
 
There are many online calculators which will calculate an approximate penalty and the savings for you.  Usually the rule of thumb is that if you are paying a three month interest penalty because the interest rate differential is lower, than you will usually save money in the long term.  This is especially true if you refinance from a fixed rate mortgage into a variable rate mortgage and keep your higher payments.  There are some cautions such as do you have the money to pay the penalty if it cannot be added to your refinance, and will you qualify for a variable rate mortgage using the government prescribed qualifying rate?
 

For these and further information on saving money on your mortgage please call 250-862-1806 or email [email protected].



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About the Author

Tracy Head and Laurie Baird help busy families find mortgage solutions. Together they have more than 45 years of experience in the mortgage industry.

With today’s increasingly complicated mortgage rules, Tracy and Laurie spend time getting to know the people they work with and help them to better understand the mortgage process. They support their clients before, during, and after their mortgage is in place.

Tracy and Laurie work closely with their clients, offering advice and options. With access to more than 40 different lenders, Tracy and Laurie are able to assist with residential, commercial, and reverse mortgages in order to match the needs of their clients with the right mortgage package.

They work closely with their clients to find the right fit, and are around to provide support for years down the road!

Contact them at 250-862-1806 or visit http://www.okanaganmortgages.com

Visit their blog at https://www.okanaganmortgages.com/blog

 



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The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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