Renewing Your Mortgage…Something 2 Think About

If you bought or refinanced your mortgage in and around 2007, and took a 5 year fixed rate and have forgotten about your mortgage until now, then pay attention because your mortgage is likely up for renewal.

Studies have been conducted and they indicate that less than a third of mortgage holders are actively trying to terminate their mortgages early by making extra payments.

We need to do more NOW, before the economy rallies and rates start to rise, making it more expense to finance the cost of a home.

For those of you who bought in 2007 and carried your mortgage to term, You have a huge opportunity on your hands, and you would be wise to take advantage!!.

At the end of the day much like everything in life, it is a choice. You can either let today’s vastly lower mortgage rates reduce your monthly payments, OR, since you are already accustomed to a higher payment, you can opt to leave your payments where they are and use the differential to accelerate the pay down. By doing the latter, you stand to make a significant dent in the pay down of your mortgage.

I guess what it comes down to is how soon you want to not have a mortgage payment anymore? A great rate is what everyone has been preaching in recent memory, but why I think our clients continue come back to us and refer their friends and family to us is for strategies and advice on how to make them mortgage free sooner.

Five years ago a majority of buyers were going with five-year fixed mortgages, for a couple of reasons.

1) Discounted variable-rate mortgages were going for close to the same rate as a discounted five-year mortgages with a fixed rate.
2) Prime was sitting at around 6% and It was widely thought that interest rates were headed higher.

And thus, approximately 70 per cent of buyers were going with five-year fixed rate mortgages when the 5 year fixed rate was sitting around 5.79%. Today, the very best rate for a five-year mortgage is around 3.29 per cent.

Please take a moment to review the exammple by Rob Carrick in the Globe and Mail to illustrate the point we are trying to convey:

Say you started with a $300,000 mortgage in 2007. If you chose a 30-year amortization, your monthly payments would have been $1,745 and your balance on renewal would be $278,184. If you moved into a new five-year fixed rate mortgage at 3.29 per cent, your monthly payments would be $1,358, which would save you a very significant $387 a month.

If you were to pocket that money and go with lower payments, your mortgage balance on renewal five years from now would be $239,087. If you kept your payments level, thereby paying down an extra $387 a month against your principal, the balance on renewal would be $213,914. The lower your mortgage amount on renewal, the quicker the loan will be paid off and the less interest you’ll pay.

High personal debt loads in Canada have caused concern at the Bank of Canada, the Department of Finance and, outside the country, the International Monetary Fund and the Organization for Economic Co-operation and Development. It would be a clear sign that Canadians are getting the message on debt if they used all available opportunities to pay their mortgages down quicker.

The reality of the situation is that the majority of people don’t even consider using their prepayment options, and I think it is because they are not even aware of the impact an extra $100 per month can make on paying their mortgage off sooner.

The vast majority of us have always turned to our banker for advice and guidance on our finances, but when you stop to think about it, your bank- who makes billions of dollars a year- stand to make even more if you hold your mortgage for longer and pay more interest.

Something to think about…..