Mortgage Question!

[Dreamer_D]

We are going to renew our mortgage early because fixed term rates have dropped so much in Canada that it will allow us to shave three years off our amortization, save about $10k in interest in the next three years, *and* pay a little less each month. Even paying the penatly (three months interest), we come out way ahead of the game.

We have the option of a 4 year term at 2.99% or a 5 year term at 3.29%... so lower interest versus greater surety. Curious, which would you opt for?

 

[TristanC]

If it was a short term difference, and you could pay up the full value in either 4 or 5 years, I would opt for the 4 year one provided the increased monthly payments are not detrimental to your ongoing lifestyle and doesn't require you to tweak spend patterns much.

 

[diamondseeker2006]

Ironically we just refinanced ours last week. Two years ago when we bought the house, we got 15 yr. fixed rate @ 4.6%. We just refinanced at 3.5% fixed. I never thought I would live to see interest rates this low.

I think there is so little difference in your rates that it would be hard to go wrong either way. Can you run the numbers for what you'd pay total if you paid 2.99 for 4 years and then had a jump to 4 or 5% that 5th year?

 

[Dreamer_D]

I wish our loan would be paid in a few years! We have many many many years of mortgage left.

Diamondseeker, I'll run those numbers. The difference in our pockets each month is only about $70 for the four years, but longer term it might make more difference in terms of interest accrued obviously.

 

[Skippy123]

I would run the numbers. Not sure how Canada works but in the US we pay interest up front. We are almost done paying off our house and they are chomping at the bit to get us to refinance which would work against us. We just are making extra pmts to principal. Also factor in the penalty amount.

 

[JulieN]

It depends on how squeezed you are for $70

 

[JulieN]

What's the mortgage amount? I came up with $17400 but that doesn't sound right if you said you can save $10,000 by refinancing.

 

[diamondseeker2006]

I just thought I should add that in our case it was almost a no-brainer. There were no fees at all other than the appraisal and attorney fee since the refinance was done through the same bank. We plan to pay off in less than 15 years, but this will save us a lot of money over time. I am just not sure how the banks will make it once interest rates rise and they are stuck with 3.5% mortgages!

 

[Dreamer_D]

LOL I just did the comparison and in 4 years the difference between the two rates is like $1500 in principal paid off. I think the security of five years at a low rate wins out handily.

 

[Skippy123]

Dreamer, I learned something new; our terms I think are different then terms in Canada. I didn't realize Canadians had terms from 6 mos to 7 years? Do the mortgage rates change at the end of a term? just curious
I am glad you found what works best for you, sounds like you got a great rate!

 

[Enerchi]

I'd go for the longer rate if the difference off principal is only $1500. That is not enough for me to sway my decision from the longer loan term. And... as it gets closer, it seems almost all Canadian banks offer some sort of 'blend and extend' plan where you can weigh the old term (unknown in 5 years...) with the amount left on your existing rate and the have a formula that still gives you less than what the new rate will be.

Loan rates are sure pretty sweet now, compared to when we bought our first house in 1986. I think they were in the double digits then...

 

[Dreamer_D]

Dreamer, I learned something new; our terms I think are different then terms in Canada. I didn't realize Canadians had terms from 6 mos to 7 years? Do the mortgage rates change at the end of a term? just curious
I am glad you found what works best for you, sounds like you got a great rate!

Hmmm... so were people thinking I meant a 4 or 5 year amortization, like only that long left on the mortgage? Funny, it never crossed my mind but there are a lot of things different in Canada than the US about mortgages I shouldn't be surprised.

When we get mortgages in Canada we basically sign a contract with the lender to keep our loan with them for a specific term. And we choose a type of loan for that term, fixed ,variable blah blah. So I could get a lower rate guaranteed for 4 years or the slightly higher rate guaranteed for 5 years.

At the end of the term you can resign with your current lender or shop around for a better rate, but you are at the mercy of the current rates. So that is why we are going with the five year term -- it guarantees us a rate of 3.09 for the next 5 years!

 

[Skippy123]

Dreamer, I learned something new; our terms I think are different then terms in Canada. I didn't realize Canadians had terms from 6 mos to 7 years? Do the mortgage rates change at the end of a term? just curious
I am glad you found what works best for you, sounds like you got a great rate!

Hmmm... so were people thinking I meant a 4 or 5 year amortization, like only that long left on the mortgage? Funny, it never crossed my mind but there are a lot of things different in Canada than the US about mortgages I shouldn't be surprised.

When we get mortgages in Canada we basically sign a contract with the lender to keep our loan with them for a specific term. And we choose a type of loan for that term, fixed ,variable blah blah. So I could get a lower rate guaranteed for 4 years or the slightly higher rate guaranteed for 5 years.

At the end of the term you can resign with your current lender or shop around for a better rate, but you are at the mercy of the current rates. So that is why we are going with the five year term -- it guarantees us a rate of 3.09 for the next 5 years!

That is different but kind of like variable but a longer term sort of variable and we might have that but I don't know? Okay, so this is how it works here, not always but. Our terms are usually the life of the mortgage; there are all sorts of mortgages so I am talking traditional! (someone correct me if I am wrong, this is how ours works and the ones that I have reviewed work). You either go for a 15 year or 30 year (I think I have seen 20 years, they vary but that is what is usual); you can get a variable or traditional or jumbo and so many more. So I got a mortgage with Wells Fargo (making that up but it is one of the big ones here), they sell my mortgage since I have a good credit score to another company, etc so I have no clue who is going to have my mortgage but I get a notice. I don't know if we get a choice and this may have changed w/all the mortgage craziness but I find it interesting you do a term with one bank and then can you switch banks or mortgage companies at the end of the term? I thought you were deciding between a 4 or 5 year mortgage that is why I brought up paying ours off soon and people wanting us to refini. lol Sorry I didn't realize you weren't at the end of it (now I understand why Julie asked your balance), so that makes a difference in calculating which is better for you. I think here terms are the life of the mortgage and not 4 or 5 years. I have a friend who moved here from Canada; she is a CPA which I think they call them CA's (I think that is what she said) out there but she would tell me so often when we were talking accounting matters (when I use to work as an accountant) that no, that isn't how they do it in Canada. So it is interesting how different things work.