If you’re into fixed-rate mortgages because you like stability and security, now may be a good time to revisit your mortgage and renew it early. There are times when it makes sense to break your old mortgage, pay the penalty and get a new mortgage at a lower rate.
Some of the things that you’ll need to talk about with your mortgage broker to help them evaluate the pros and cons of renewing early include:
- your current mortgage balance and value of home
- your interest rate
- renewal date
In the last month, I’ve worked with two families where it made sense to break their existing mortgage pay the penalty and get a new five year fixed rate mortgage. One family went from an interest rate of 3.89% to 3.09%. What they were able to do with this lower interest rate is shorten the amortization by 9 years while still maintaining about the same bi-weekly payment. They are now able to pay their mortgage off in 10 years rather than 19 years. The penalty of $3500, plus an additional $800 for a lawyer visit made sense considering the ability to shave-off nine years on their mortgage.
If you have any questions about this and how it would apply to your own mortgage situation.