Famous last words. If you knew last year that rates would go up as much as they did, would you have broken your term and renewed early at a lower rate. Of course you would have if we would have had that crystal ball and foreseen the future.
Why it’s good to talk to your mortgage broker about 12 months before your maturity date:
- You might need to incorporate different strategies like a renovation, a move or purchasing another home down the road.
- To take you to a new lender we can hold their rate between 90 and 120 days from renewal. When rates are on an upward trend this will protect you for the renewal date.
- Maybe you want to stay with your current lender and we can negotiate an early renewal.
- Even if you are in a fixed term your payout penalty is most likely 3 months interest and can be capitalized into an early renewal if you switch lenders. And if not we can just be proactive and keep an eye on it. This might be an opportunity to switch into a more flexible variable rate (lower rates than fixed, lower payout penalties)
Why would you switch into a variable rate when Prime keeps going up?
The variable rate is a combination of Prime Rate and a discount the lenders will give you. What does this have to do with renewals?
- In January 2017 Prime was set at 2.70% and a typical discount was around 0.50% so if you took a variable rate out your mortgage rate was 2.2%. Currently on May 14, 2018 Prime sits at 3.45%. The discount lenders give on a variable is in the ball park of Prime -1%, so effectively 2.45% for a mortgage rate.
- To break a variable mortgage and early renew your payout penalty will be 3 months interest unless you are in one of those restricted no-frills mortgages.
- What am I saying? If your mortgage is variable and your discount is currently less than 0.50% of Prime, it doesn’t matter if you have 3 years left on your term, it would be worth your while to see if it would make sense to early renew with a much better discount.
This is why I like variable mortgage rates because of this kind of flexibility.
Clear as mud? Does this sound confusing? Did I lose you with all the numbers? Just give me a call and I walk you through it. No mortgages are one-size-fits all.