Does it make sense to refinance even if you don’t need to pull out equity?
Depending on the situation, it could save you a ton of money! With the recent drop in interest rates to record lows there is a good chance your active interest rate is higher than what you could currently get. If you were to break your current mortgage early to get these rates it would lower your mortgage payments, and if you add those savings up over the remaining term of your mortgage it may add up to thousands of dollars in savings over those years.
What’s more, because the payment amount would be lower, you can refinance to a lower amortization (years left on mortgage) while keeping your current mortgage payments approximately the same as they are now. Depending on your current interest rates this may save you years on the life of your mortgage payments! And when you add up years worth or mortgage payments the savings can be quite substantial, all while keeping your payments the same as they would be now.
There are a few things to keep in mind before doing this:
Number 1- Your payout penalty
If you are in a fixed term mortgage your current lender will charge a payout penalty for breaking the mortgage early. This will either be what is called the ‘interest rate differential penalty’, or ‘The 3 Month Interest Penalty.’ This means they will charge you 3 months worth of regular interest payments, whichever is higher. Once that penalty is known we can calculate the savings of refinance and make sure that the savings in the end justify the refinance.
Number 2- Making sure you are able to break your current mortgage early for a refinance
Some mortgage products will not allow borrowers to break the mortgage early without the sale of the property, this information will be on the mortgage contract you signed, or you can contact the lender directly to find this information out.
Because of the size of the average mortgage, savings in interest payments or years of loan payments have the potential to add up to tens of thousands of dollars staying in your pockets. If you would like to find out more about refinances or current mortgage rates, please don’t hesitate to call me directly at 403 915 5956 or send an email to jesse.smith@dlcme.ca