Mortgage Refinance Advice

[conerstone]

I guess I made bad choice picked 5 year fixed close mortgage rate 5.24% with Ingdirect last Sep (Ingdirect has 25/25 prepayment options). Since the Prime has come down to 4.75% and I have RBC offering me with Prime (4.75% - 1%) 5 year fixed close variable rate(RBC only has 10% prepayment and double match(double) payment option). My remaining mortgage amount is little over 200K. currently my amortization is 10 years, i plan to pay it off in next 4-5years, so Prepayment option is important factor as well. also if I refinance with RBC I will have to pay 3 months penalty to ING, which about 3K$. will I get return even i pay for the penalty? I understand it's rather difficult to predict. I hope get some your prefoessional personal opinion. If you were me, should you refinance for Prime - 1%? thank you in advance for advice.

[Wonderdollar]

I guess I made bad choice picked 5 year fixed close mortgage rate 5.24% with Ingdirect last Sep (Ingdirect has 25/25 prepayment options). Since the Prime has come down to 4.75% and I have RBC offering me with Prime (4.75% - 1%) 5 year fixed close variable rate(RBC only has 10% prepayment and double match(double) payment option). My remaining mortgage amount is little over 200K. currently my amortization is 10 years, i plan to pay it off in next 4-5years, so Prepayment option is important factor as well. also if I refinance with RBC I will have to pay 3 months penalty to ING, which about 3K$. will I get return even i pay for the penalty? I understand it's rather difficult to predict. I hope get some your professional personal opinion. If you were me, should you refinance for Prime - 1%? thank you in advance for advice.


Most other people are in the same dilemma as you are. There are a number of other threads and discussion regarding this issue in this forum. You may want to search and read other's comments as well.

While in some cases it makes more sense to pay penalty and switch to variable rate mortgage but in some cases, like yours it may not make much sense and I will say that you have not made a bad choice and your rate is very good and you have a very good pre-payment facilities which if done properly may make you mortgage free in less than 4 years time.

Even if the variable rate stays the same, you will take more than 15 months time just to recover the penalty amount of breaking the mortgage and then would start getting some benefit of low variable rate. What is the guarantee that the variable rate would stay same for that long?

If I were you, I would not go for this gamble for my self and change mortgage at this rate and being a mortgage professional I would not advise my clients to do the switch at this rate.

[BillyParadise]

I hope get some your prefoessional personal opinion. If you were me, should you refinance for Prime - 1%? thank you in advance for advice.

Hi Cornerstone,
I'm no professional, but here's my thoughts on your situation. Given the information you supplied above, I've estimated your current mortgage payment to be $2139.31 and current balance to be 186,995.59. There are different ways to run the numbers, but assuming you don't have the 3 months penalty lying around, this would be the way I would do it:

Your penalty will be about $2440.50. Let's assume you add that onto the new mortgage as of June 1 and you get the 10 year amortization (I don't think they'll do a 9.5 year am). Your new mortgage balance will be 189436.09, with minimum payment of $1892.93

If you keep the payments the same - $2139, you will have an extra payment of $246 a month. This pays your mortgage down in 104 payments, rather than the 111 you have remaining now. This is a 7 months savings on your mortgage.

Note this assumes the prime rate stays where it is right now. It won't. I've read that we're expecting another 1/4% drop on June 10th, and then it will stay constant for a while. After that, it will likely rise. As you get closer to the end of the mortgage, the rates going back up will affect you less.

If you keep your payments constant, you will be ahead until the average rate you pay reaches 5% - or a 6% prime rate. That's a 1.25% rate increase from where we are now. It could get back up there in a few years, and I'm not one to predict. But I think moving to an open variable is the way to go in your situation.

BP


(numbers came from the mortgage calculator available at http://www.vertex42.com/Calculators/Canadian-mortgage.html)

[AllWheelDrift]

I guess I made bad choice picked 5 year fixed close mortgage rate 5.24% with Ingdirect last Sep (Ingdirect has 25/25 prepayment options). Since the Prime has come down to 4.75% and I have RBC offering me with Prime (4.75% - 1%) 5 year fixed close variable rate(RBC only has 10% prepayment and double match(double) payment option).
That rate you quote for RBC sounds like a variable, not a fixed rate. I don't think you can find any fixed rates below prime right now, plus they wouldn't quote the rate based on prime for fixed rates.

[conerstone]

"5 year fixed close variable rate" sorry my mistake, it's 5 year close variable rate

[Thalo]

Most other people are in the same dilemma as you are.

Did nobody read my posts in any of the mortgage threads, that I've been posting since summer, to NOT go fixed and go variable? You have yourselves to blame, haha!

[BillyParadise]

Thalo, I didn't read your posts, but I agree - and research bears it out - 80% of the time, it works out better to go variable. And you can't tell in advance whether you'll be a winner or a loser, so put the odds in your favour - go variable.

Add to that, go variable, but make payments from day one as if the rate is .5% higher, so that if/when interest rates rise, you're not immediately screwed.