Question:

We have our first home and took out a $170,000 motrgage at 7.75%, three years term, 18 months ago. My bank has offered me to blend the mortgage to take some advantage of current rates. We were offered 2 years at 6.125 3 years at 6.50 and 5 years at 6.75. We will be locked in to these terms. I can not get a handle on where rate are going over the next five years. Any advice?

Thanks Jeff Gordon

Answer:

Mr. Gordon,
I apologize for the delay in answering your question. I was only just notified that your e-mail was waiting for me on the website.
On November 21, 2001, I was at a conference in Toronto and when I got back our five year mortgage rate went from 5.45% to 5.85%. If I were you, I would investigate the cost of breaking my mortgage entirely and weigh that against the savings I would achieve by way of the lower interest rates over the term of my mortgage. Our current mortgage rates are 4.45%, 4.75% and 5.6% for 2, 3 and 5 year terms.
A word of caution here. If you request a payout figure from your lender, ask for it in writing. If you make plans based on a verbal reply from your lender be prepared for a surprise later. If your penalty is greater than 3 months interest payment, check the mortgage document or have it checked by your lawyer or mortgage broker to see if it can or should be reduced.
A quick calculation indicates that you would save a little over $5,200.00, $9,000.00 or $7,900.00 respectively for the 2, 3 and 5 year terms based on the NEW blended rates from the bank.
If you are not in a position to pay your bank's penalty from your own savings, the penalty can be added to your mortgage but you will have to budget an additional $800.00 or so for legal and appraisal costs. If you can pay the penalty outright, the mortgage can be transferred to the new lender without additional costs.
Hope this helps you. Cheers, John Lozinski

Answered By: John Lozinski

More Questions & Answers ...