How to take advantage of low mortgage rates?
September 06, 2016
With historically low mortgage rates in Canada, this is the time to take advantage of such historically low rates. Here are some ways that you can consider in making some smart decisions about your finances:
1) Increase Your Mortgage Payments
The lower the interest rate, the more potential you have to paying off your mortgage faster. This is the time to increase your monthly payment, set up an accelerated payment plan or make lump-sum payments towards your mortgage. Any extra funds that can be paid will help since more of the payment will go towards the principal.
2) Access Home Equity
If you are considering purchasing an investment property, renovating part of your home or buying a more expensive home, you can access the equity in your home (the value of your property minus your mortgage balance) to help pay for either.
3) Consolidate Debt
If you have other debt such as a car loan, credit card balance or line of credit, you can consolidate this into your mortgage to take advantage of the low rate, since the interest rates on these debts are likely higher than current mortgage rates.
4) Refinance Your Mortgage
With low mortgage rates, you may want to consider refinancing even if that means paying a small penalty to break your current mortgage to refinance at a better rate. Even just half a percent less than what you’re currently paying can save you thousands of dollars over time. You gain the benefit of lower monthly payments and every dollar you save now is one less dollar you have to pay the bank.
If you choose to refinance your mortgage and break your current mortgage, remember there will be some costs to prepare for:
Mortgage prepayment penalty
If you currently have a variable-rate mortgage, you’ll only have to pay 3-months’ interest, but if you have a fixed-rate mortgage, your prepayment penalty is the greater of 3-months’ interest of the interest rate differential or IRD. Lenders determine the IRD by looking at your current mortgage rate, the number of months left in your term, and the rate that they could charge you for a new mortgage term similar in length to the remainder of your term.
Mortgage discharge fee
You will need to pay a discharge fee to your current lender if you decide to change to a different lender. The mortgage discharge fee can vary from lender to lender and generally start at $200 and go up from there.
Legal fees
Similar to when your took out your first mortgage, your real estate lawyer will check your mortgage’s terms and conditions, register your new mortgage, and do a title search for liens against your home. Legal fees can range from $700 – $1000 however your new lender may be able to pay these fees if your mortgage is more than $200,000.
We hope that this has helped you see some of the advantages of the current historically low mortgage rates in Canada. You can also use our Mortgage Calculator to help you determine your payments.
If you require more information, please feel free to contact us or Shawna MacDonald at The TMG Mortgage Associates. A mortgage broker can help you achieve your financial goals and help recommend a payment schedule for you to pay your mortgage down faster while maintaining the lifestyle you want.