Home Mortgage Refinancing
There are often many advantages to breaking your mortgage early:
- Lower monthly payments
- Lower cost of borrowing
- Pay down the mortgage faster by lowering the interest charges but keeping your payments the same
- Equity take out for debt consolidation, investments, vacation
- Better cash flow on income properties
- Consolidate first, second and third mortgages to a lower first mortgage rate
If you are looking for home mortgage refinancing, give me a call or apply online today. It is a good idea to call your current mortgage holder first to see what the exact penalty will be for breaking your mortgage early. Often there will be a 3 month interest penalty or an IRD (interest rate differential) penalty for breaking your mortgage. The penalty can be often be incorporated into the new mortgage. The exact cost will depend on how your lender calculates the fee, your interest rate and the length of time left on the mortgage.
Save Money On Your Break Fee: Most lenders offer an annual prepayment option in their mortgage however they seldom incorporate this prepayment privilege in the early termination fee. Be sure to request from your lender that they exclude the amount allowed to you each year as a prepayment privilege from the calculation. When you refinance, what you are doing is prepaying your entire mortgage, they should not penalize you for the prepayment amount allowed to you.
An example would be a mortgage lender that offers a 15% annual prepayment option. If there is currently 90% LTV left on the mortgage, then the IRD penalty should only be calculated on 75% of the mortgage.
Interest Rate Differential (IRD):
A penalty for early prepayment of all or part of a mortgage outside of its normal prepayment terms. This is usually calculated as “the difference between the existing rate and the rate for the term remaining, multiplied by the principal outstanding and the balance of the term”.
Example:
1. $100,000 mortgage at 9% with 24 months remaining.
2. Current 2-year rate is 6.5%.
3. Differential is 2.5% per annum.
4. IRD is $100,000 * 2.5% * 24 months / 12 months. = $5,000.