When mortgage rates are at their lowest, as is the case now, many people want to take advantage of this economic situation.
However, the penalties incurred in the event of termination of their mortgage contract dissuade many homeowners from making this choice.
It is in this case that a mixed mortgage loan can help you.
It allows you to get a mixed rate between your current rate and the lowest rate while avoiding the penalties of termination of your mortgage contract.
Given the current low interest rate environment, many people are curious about how to reduce their current monthly mortgage payments, and that’s normal! If you are one of the many who had a fixed rate in 2008 or 2009, you are probably making payments in the neighborhood of 4 to 5% or more, and you’re stuck with that rate for another or two more years. It’s frustrating when the prevailing rates are as low as 2.84% for a new 5-year fixed term.
Generally, the mortgage penalties incurred when breaking your mortgage contract represent the largest of the following:
interest of three months or the difference between interest rates (more simply, the difference between your mortgage rate and the current rate your bank offers for the remaining period on your contract). Banks are protecting themselves. This is put in place to prevent people from permanently breaking their mortgage contract to enjoy a better rate.
However, there is what can be called a “middle ground” where your rate is not high enough to trigger the IRD and for which only three months of penalty interest apply. When we talk about it, this rate is around 3.89%.
However, most people do not follow this scenario and if their rate is more than 4%, they are likely to be subject to the rate differential penalty (IRD) and terminate their mortgage before the end of the term then does no Sens. So, what to do?
Speak with your mortgage broker about a mixed mortgage. There are two options that most banks offer:
Blend and Extend or Blend Futures .
Under a Blend and Extend option, the bank will have you sign a new mortgage agreement with a new blended mortgage rate and you will not be required to pay penalties from your pocket or add them to your mortgage loan amount. .
For example, if your current rate is about 5% for another 2 years and your bank offers a fixed rate of 5 years of 3.29%, you would end up with a new 5 year term at a rate somewhere between the two. Although you can not get the absolute lowest rate, it’s a lot better than paying the 5% you signed for another two years and this saves you from paying a penalty or increasing your loan balance. mortgage. In addition, you have a new contract and additional protection for three years on your current mandate.
The Term Mix is pretty much the same concept, but the term of your term does not change.
For example, you would finish the same two years remaining, but at a lower rate (between your current rate and the current rate offered for a two-year mortgage rate) and again, you will not have to pay any penalty of your pocket or increase the amount of your mortgage loan.
Why would you choose this option, not the mix and extend option? If you are considering selling your property, the term mix is a good option because you can reduce the amount of your mortgage payments without having to be taken with a long term mortgage contract. This flexibility could be beneficial in the sense that you can avoid paying penalties if you plan to sell in the near future. Some banks only offer the mix and extend option. It is important to know your prepayment options before choosing a lender or rate because flexibility is just as important as getting the best rate.
In the end, you really have to talk to a mortgage broker to better discover your options. If you are in this “middle ground” a good broker will be able to show you the calculations and estimate how much you could save by terminating your mortgage. If you have to pay a Rate Differential (IRD) penalty, a good broker will review the different options that are applicable to your financial situation, taking into account your schedule and goals to help you choose the option. which suits you best.