Question:

i have a 25 yr mortgage, 6.85 percent, 3rd year of 5 yr term, 125K original, 90K left owing.

i was thinking of renegotiating my mortgage, but there is about a 1400$ penalty, also, i want to put down 15 or 20K.

what would you recommend?

r

Answer:

First, I would get your penalty quote in writing from your lender. Often, the individual on the telephone making the quote does so off the cuff. When the lawyer ultimately gets the pay out statement in writing the numbers are different.
I would utilize your prepayment privilege prior to discharge of the mortgage. That way you will not have to pay 3 months penalty on the portion you are allowed to prepay.
We have lenders at fixed rates at 4.75%, 5.55% and 5.6% for 3, 4 and 5 year terms respectively or a few variable rate plans, such as; (1)Fully open at bank prime (3.75%) with 1% cash back on transfer. (Must keep the mortgage for 1 year to keep all of the 1% cash back) That effectively works out to 2.75% for the first year if rates don't change. (2)Prime less .5% (3.25% today) for 5 years with a rate cap at 6.85% today. (3) 1.24% for the first 3 months, thereafter prime minus .4% (3.35% today) for 5 years and convertible to the lender's BEST rate anytime (see rates quoted above for fixed rates). Most lenders try to convert to the posted rates which are at least 1% higher than their best rate.
Each 1/4 of 1% rate saved over a 5 year term is roughly equivalent to 1% of the mortgage amount. Going from 6.85% to 5.6% will save you up to $4,500 over five years. Changing your mortgage seems like a smart option. If you need more info or help on this, I can be reached at (613) 721-6843 in Ottawa, or by e-mail at jlozinski@bellnet.ca.
Hope this helps, John Lozinski

Answered By: John Lozinski

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