Canadians have been keeping track of the low-interest rates and wonder whether an early mortgage renewal could save them money.
An early mortgage renewal or renewal, in general, provides an opportunity to negotiate the interest rate. It’s an opportunity to capitalize on today’s low-interest rates before they go up.
An early mortgage renewal means you would be breaking your current mortgage to enter into a new one. Breaking your existing mortgage means you have to pay a penalty to your current mortgage provider.
Penalties are either 3 months interest or an interest rate differential (IRD) whichever is higher and can vary among lenders. The big 5 banks calculate their penalties based on posted rates. Monoline lenders calculate their IRD based on contract rates. What does this all mean? A substantial saving in penalty costs if you are with a monoline mortgage lender.
Save Money by an Early Mortgage Renwal
Considering the current lending environment, there’s an opportunity to early renew into lower rates. Here are a few options to consider:
1. If you renew with your current lender, you may be able to break your current mortgage without penalty. Then you can start making payments at the new interest rate. If this isn’t possible, banks sometimes offer “blend and extend” options.
2. Switch mortgage lenders, it’s a great time to take advantage of the low-interest rates and review lender policies on penalties. Policies like bank posted vs monoline contract rates however moving to a new lender will have you requalifying under the new rules (Stress Test).
With all mortgages, the lender can choose between 3 months interest or IRD, whichever is higher. If they choose IRD, they take into account your current mortgage rate, the new mortgage rate, and the remaining months left in your current term.
All mortgage lenders allow for early mortgage renewals. You can add up to $3000,00 of your penalty to the current mortgage balance however anything over $3000.00 must be paid out of pocket.
In order to calculate if it’s financially beneficial, you must weigh the penalty against cost savings. We review the savings in payments as well as interest savings over the life of the mortgage. Just because interest rates are low doesn’t always mean there will be enough savings to combat the breakage costs.
Are you thinking of doing an early mortgage renewal? Let our trusted Edmonton Mortgage broker calculate whether it is financially beneficial for you.