Should you break your mortgage?
Once again interest rates have dominated the headlines. First, it was the declining fixed rate. Fixed rates are usually priced off bond markets, independent of what's happening with the prime rate. The Bond market, like all markets, fluctuates daily. Fixed mortgage rates are now as low as 2.69% to 2.89% (and appear to be dropping). The other interest rate causing all the fuss is the prime lending rate. Up until a couple of weeks ago, many industry observers believed this rate would increase, but in a surprise move, the Bank of Canada lowered its overnight rate to .75% -- this is the borrowing rate for lenders. Variable rate mortgages are based on bank PRIME rates as are lines of credit and other loans.
So what happened? Lower oil prices are likely one reason for the turnabout. The Bank of Canada had already expressed concern about the impact of sharply lower oil prices on the economy, which made them more cautious about when to start increasing the prime rate.
While it took the banks a few days to lower their prime rate, they eventually did. However, instead of dropping their rates the full .25%, they opted for a decrease of .15%. So, today the prime rate sits at 2.85%.
Lower fixed rates and lower prime rates mean less expensive mortgages for those looking to buy a home, refinance or renew. For those with a variable rate mortgages, it means your existing rate just went down. The big question is for those in higher-interest fixed rates -- should you break your current mortgage to take advantage of the new rates?
While every situation is different, there are a few steps you can take:
Crunch the numbers: As a mortgage broker, I start by calculating what your interest savings would be if you were to refinance and whether the savings are enough to offset any penalty owing. By getting into a lower rate now you can position yourself more advantageously when, and if, rates start to increase.
Review your financial situation: Are there high interest credit card debts or other loans you could pay out by refinancing your mortgage?
Reduce your amortization, not your payment: If it makes sense to refinance, and if your current payment is manageable, then consider sticking with the same payment but reduce the amortization. By doing this you can pay off the mortgage faster.
Lowering your mortgage costs can be a smart move. As your mortgage broker, I can help review your calculations and analyze your situation. Because I keep on top of the current rates and can access discounted rates from lenders, I can offer you a variety of options. Let's see if we can help save you money and get your mortgage paid off sooner. Contact me today!
