Real Estate

Lower penalty vs lower rate

  • Last Updated:
  • Aug 14th, 2019 6:54 pm
[OP]
Newbie
Jul 12, 2017
5 posts

Lower penalty vs lower rate

Hi folks,

First-time buyer here. I am exploring my mortgage options. I narrow down to two options
1. Brokers I trust offer 2.79, 5 years fixed from non-banks (MCAP). The penalty for breaking the mortgage is low.
2. A major bank that I have relationships with offers 2.69, 5 years fixed, but the penalty is steep.

I am debating the tradeoff. Given the volatile future, there is a non-trivial chance that I want to break the mortgage when the rate goes down. On the other hand, 2.69 is a good rate.
Any insight would be appreciated.
7 replies
Sr. Member
Jul 8, 2013
544 posts
267 upvotes
Edmonton
Or go with brokers here and you may qualify for even better rates than 2.69%, depending upon your situation.
Deal Fanatic
User avatar
Feb 2, 2014
6598 posts
1604 upvotes
Toronto
ffsmaster wrote:
Aug 14th, 2019 11:47 am
Hi folks,

First-time buyer here. I am exploring my mortgage options. I narrow down to two options
1. Brokers I trust offer 2.79, 5 years fixed from non-banks (MCAP). The penalty for breaking the mortgage is low.
2. A major bank that I have relationships with offers 2.69, 5 years fixed, but the penalty is steep.

I am debating the tradeoff. Given the volatile future, there is a non-trivial chance that I want to break the mortgage when the rate goes down. On the other hand, 2.69 is a good rate.
Any insight would be appreciated.
You can go as low as 2.39% 5-year fixed with the lower IRD penalty calc.
Kevin Somnauth, CFA
Mortgage Broker - Mortgage Architects (#10287) and Real Estate Salesperson - Century 21 Innovative
President's Club Award Winner At The Mortgage Architects
Deal Addict
Jan 15, 2017
2421 posts
1742 upvotes
If you think rates are going down, you can also look at a variable rate with a much more attractive break penalty, or look at a fixed term less than 5 years which may also result in a lower penalty to break. Another option is to accept the 2.79% with MCAP and the lower break penalty as it is indeed a great rate. What is your mortgage balance? How much of a difference every month are we talking about?
[OP]
Newbie
Jul 12, 2017
5 posts
My mortage amount is just below 1M, so the difference is significant even for 0.1%. Also, this implies that I cannot qualify for the 2.39 rate mentioned above.
How do one verify if a broker is reliable? The ones I talked to are referred to me by my real estate agent who I trust.
Deal Addict
Jan 15, 2017
2421 posts
1742 upvotes
ffsmaster wrote:
Aug 14th, 2019 1:34 pm
My mortage amount is just below 1M, so the difference is significant even for 0.1%. Also, this implies that I cannot qualify for the 2.39 rate mentioned above.
How do one verify if a broker is reliable? The ones I talked to are referred to me by my real estate agent who I trust.
Did your real estate agent disclose whether or not the he/she receives any type of financial compensation from the mortgage broker for the referral? This is quite common.

Edit to Add: the difference in monthly payment on a $950K balance and 25 year amortization is about $48, a little more than 1% of the total payment. Over a 5 yr term that is about $2880 more for the added benefit of a less financially punitive mortgage break fee. You could look at that as an insurance against the pre-payment penalty. Or, if there is a significant chance that you may very well break the mortgage, choosing a lower term can help. Have you received any rates for terms less than 5 yr? Have you considered a 1 or 2 yr term?
[OP]
Newbie
Jul 12, 2017
5 posts
skeet50 wrote:
Aug 14th, 2019 3:38 pm
Did your real estate agent disclose whether or not the he/she receives any type of financial compensation from the mortgage broker for the referral? This is quite common.

Edit to Add: the difference in monthly payment on a $950K balance and 25 year amortization is about $48, a little more than 1% of the total payment. Over a 5 yr term that is about $2880 more for the added benefit of a less financially punitive mortgage break fee. You could look at that as an insurance against the pre-payment penalty. Or, if there is a significant chance that you may very well break the mortgage, choosing a lower term can help. Have you received any rates for terms less than 5 yr? Have you considered a 1 or 2 yr term?
Thanks for the reply. There might be a commission.
I got the same rate for 4 years from the major bank. Will check with them for 1 or 2 years option.
Deal Addict
Jan 13, 2014
1316 posts
372 upvotes
Calgary
Becareful of MCAP as they might put you in a mortgage where the only way out of a mortgage is either end of term or selling the house. I am stuck with 2.95% variable at mcap and cant port out because the best 5 year fixed they could offer me today is 3.1%.

Top

Thread Information

There is currently 1 user viewing this thread. (0 members and 1 guest)