If you are considering getting a new mortgage with lower interest rates, you WILL get dinged by mortgage penalties.

The amount of the penalty depends on your existing mortgage rate and the current rates.  When fixed rates go down, your penalties to get out of your current fixed rate GO UP!

You need to know how much your penalty will be before you decide to refinance or do an "early switch" with prepayment penalties.

Here is an example of a BASIC Interest Rate Differential (IRD) calculation:  

Based on a $200,000 with 3 years remaining on a 5 year term of 5.70%

There are 3 years remaining, so we will use the current 3 year rate to calculate the differential.

If the lenders current 3 year rate is 4%, there is a difference of 1.7%.

Because there are still 3 years left, the principal is multiplied by 3
 
$200,000  x  1.7%  x    3     =  $10,200 penalty                  

**This calculation is an estimate and will change every time mortgage rates change. If the differential increases, the penalty will also increase.

The BIG question is ... Will you still save money by refinancing?
 
Here is how to do the IRD calculation.

Step 1: ________ (A)

What is the current interest rate of your Mortgage expressed as a decimal (for example, 6.75% = .0675).

Step 2: ________ (B)
  

What is the current interest rate (choose the term closest to your remaining term).

Step 3: ________ (C)
  

A - B = C, which is the difference between your current interest rate and the interest rate in B above (write C as a decimal).

Step 4: ________ (D)
  

Amount you want to prepay (if any).

Step 5: ________ (E)

Number of months for the remaining term of your Mortgage.

Step 6: ________ (F)

(C x D x E) ÷ 12 = F, F is your estimated Interest Rate Differential Amount  or  "the penalty amount."

If you want to find out the best rates available ... I can do the calculations for you!  Just give me a call and I'll help you decide if refinancing at today's low rates makes sense for YOU!

Justin Blacklock

604-736-1855.