• Should I break my mortgage to take advantage of today’s low rates?

    It depends…

    First, it depends on the size of the penalty. The likelihood is that you are in a closed term mortgage. The most common term length is 5 years. Generally speaking, the more time you have left on the mortgage, the higher the penalty. There are other factors like where interest rates have gone since you got the mortgage and which lender you are with. If your mortgage has a variable rate, usually your penalty is a flat rate of 3 months interest. This is the best type of mortgage to be in if there is any chance you will break your mortgage.

    The only way to know the amount of the penalty is to call your lender or give your broker consent to contact the lender on your behalf. They might tell you they can’t give you a clear answer because “it depends”. This is false. You need to insist that they give you a number if you paid it out today.

    Once you know the penalty and the new rate, your broker can calculate how long it will take to recover your penalty in savings on the new mortgage. Then it comes down to numbers. For example, if you have 2 years left on your mortgage, the penalty is $5000, it will take you 2 years to save $5000 on the new mortgage, then it might make sense as you will have an additional 3 years of the new historically low rate.

    Food for thought!

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