Mortgage Strategies - Fixed or variable - your choice
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This has always been a hard choice for many people. Statistically speaking you will save more money in interest costs with a variable rate mortgage. With record breaking low fixed rates many people have been locking into 5-year fixed rates over the past few months. As rates rise once again and the variable rate surcharge drops the opportunity to take advantage of variable rates may be returning.
I ran some numbers a few weeks ago comparing the best 5-year fixed rate of 3.59% against the best variable at 3.05%. A few days ago I compared the current best 5-year fixed rate mortgage of 3.84% against the best variable rate mortgage of 2.65%. In the first scenario fixed was a good deal. As fixed rates move up and the spread between fixed and variable increases variable is the best way to go.
So, what should you do? If you have a mortgage coming up for renewal in the next 120 days - get a rate hold for the fixed rate. If the variable rate surcharge drops a bit more - then give me a call - I'll run some numbers to help you decide. At that time, variable may be the way to go. We can even run scenarios to allow for increases in the prime lending rate as a fair comparison. After all, it's your money - so you should have the information to make an informed choice.
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Mortgage Strategies - mortgage renewing in 1-4 years?
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SCENARIO: CURRENT FIXED RATE (Over 4%) 1-4
years remaining to maturity.
If
you are in a current fixed rate mortgage but would like to refinance to enjoy a
lower rate with the stability for the next 5 years, you likely have a fairly
substantial penalty levied in order to break that mortgage commitment. Penalties will likely to be calculated using Interest Rate
Differential (IRD) - which is a compensation charge that may apply if you pay
off your mortgage principal prior to the maturity date or pay the mortgage
principal down beyond the prepayment privilege amount. The IRD amount is
calculated on the amount being prepaid using an interest rate equal to the
difference between your existing mortgage interest rate and the interest rate that
your existing lender can now charge when re-lending the funds for the remaining
term of the mortgage.
STRATEGY: Secure a mortgage
approval now for a fixed rate to offset rates likely RISING over the next 120
days. As the rates rise the IRD penalty will DECREASE on your current mortgage when you pay it out early and renew into the new mortgae, (as the current rates rise, the IRD will
shrink). I receive notice from most
lenders before rates are going to rise
- so I can calculate in advance at what
point it becomes (highly profitable to
refinance) at which point you can set the refinance date. When the current rates rise enough to make it
worthwhile to redo the mortgage - we act.
This scenario not only allows you
to have a guaranteed savings over the remainder of your current mortgage term
BUT you get the added bonus of having a very low rate locked in and the peace of mind for the next for the next 5 years).
There are many other mortgage strategies - this is only one option. Call me anytime to discuss your situation.
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