Today, the market is down to prime – 0.70%, or thereabouts.
For those who got their mortgage 12 months ago, many wouldn’t even consider refinancing as an option. But, an option it is.
First, we’ll assume our hypothetical borrower has:
- Our homeowner’s mortgage is at prime rate (2.75%) today
- She swaps for a new variable-rate mortgage at prime – 0.70% (2.05%)
- Prime rate increases 25 bps on Sept. 8
- Rates then stay put until June 2011 (Not our prediction; just an assumption to match the “pause” forecast by most economists.)
Here are the results:
- Interest savings: $8,345 (hypothetical over 60 months)
- Penalty: $1,719 (three-months of interest)
- Discharge Fee: $250 (depends on lender and province)
- Net benefit of breaking early: $6,376 (roughly)
For most people, saving thousands over 3-5 years isn’t exactly the worst idea. So, if you’re currently in a variable at prime rate or above, find a mortgage planner to see if it makes sense to switch.
It doesn’t have to be a variable rate you switch into either. There are arguably even better deals on 1- and 3-year fixed terms.
Source: Canadian Mortgage Trends