Early mortgage renew save you money?

No, it's not like rates are going to increase any time soon.

sorry ,my bad making a really bad question, do you mean ,no, I should not renew or no ,there is nothing I am missing that will make this a bad idea?

dani76 wrote: ↑ Hi, I have been contacted by my bank to early renew my mortgage to get a better rate ( from 3.090% 5 year fixed to 1.97% 5 year fixed) but I have to pay penalty of $8620.37 to discount from the savings of $16,269.85
so $16269.85- penalty= total savings of $ 7649.46

So until here all is fine, I will be saving 7649.46 BUT she said I can pay the penalty by putting 5000 back to the mortgage and the rest $3620 on my line of credit that has an 8% of interest.

My question is ,should I renew it? Is there anything I am missing that will make this a bad idea?

I have found this [article] that explain it somehow but still I would like to know what do you think

Regards

A bit confused
"So until here all is fine, I will be saving 7649.46 BUT she said I can pay the penalty by putting 5000 back to the mortgage and the rest $3620 on my line of credit that has an 8% of interest. "

But wouldn't put 5000 back to mortgage will generate more interest since you literally increase the principal balance?
Same for line of credit?

So you actually will pay more than 7649 penalties?

When you said early renew, how early? Like 4 years early?

smartie wrote: ↑ A bit confused
"So until here all is fine, I will be saving 7649.46 BUT she said I can pay the penalty by putting 5000 back to the mortgage and the rest $3620 on my line of credit that has an 8% of interest. "

But wouldn't put 5000 back to mortgage will generate more interest since you literally increase the principal balance?
Same for line of credit?

So you actually will pay more than 7649 penalties?

When you said early renew, how early? Like 4 years early?

Yes, 4 years early.
Yes, it will add 5k to the mortgage but the interest paid along next 5 years will be still lot lower
Yes, adding money to the line of credit with a 8 % interest will add cost but I have some savings to pay that quick before generating any high fees.
So is basically like I pay now 8k to save 7k along the next 5 years,kind of putting my money to work to generate a 40-45% revenues ( as savings) on the next 5 years.
I know I am answering my own questions but I am wondering if there is still something else I am missing

dani76 wrote: ↑ Yes, 4 years early.
Yes, it will add 5k to the mortgage but the interest paid along next 5 years will be still lot lower
Yes, adding money to the line of credit with a 8 % interest will add cost but I have some savings to pay that quick before generating any high fees.
So is basically like I pay now 8k to save 7k along the next 5 years,kind of putting my money to work to generate a 40-45% revenues ( as savings) on the next 5 years.
I know I am answering my own questions but I am wondering if there is still something else I am missing

I think you got it. You're paying 8K now to save 7k over 5 years. So unless you have the 8K in cash to pay, adding the amount to the mortgage how it works.

dani76 wrote: ↑ Yes, 4 years early.
Yes, it will add 5k to the mortgage but the interest paid along next 5 years will be still lot lower
Yes, adding money to the line of credit with a 8 % interest will add cost but I have some savings to pay that quick before generating any high fees.
So is basically like I pay now 8k to save 7k along the next 5 years,kind of putting my money to work to generate a 40-45% revenues ( as savings) on the next 5 years.
I know I am answering my own questions but I am wondering if there is still something else I am missing

I think you have the jist of it. You are however entering another mortgage that still has large penalties for breaking. If you went variable, the Interest Rate Differential penalty could be much lower in the future. If that's a possibility, I'd consider it. It might even have a lower rate. Life changes a lot in 5 years - if you were variable on your last term, we wouldn't be even having this conversation - there would be no penalty!

So you will be left weighing having the security of 5 years at a great rate against an even lower rate with lower penalties if you do have to break.

Also, if you are paying the penalty anyway, what's to stop you from shopping this around? Get an even better rate.

So my short answer is: do it.
My slightly longer answer is: Do it but consider variable or shopping around. 1.85% is out there. Also if you have a CMHC type Insured mortgage make sure you are able to transfer that if you have it. It helps with the rate. If you need but can't transfer the insurance, stay with your current bank.

dani76 wrote: ↑ Yes, 4 years early.
Yes, it will add 5k to the mortgage but the interest paid along next 5 years will be still lot lower
Yes, adding money to the line of credit with a 8 % interest will add cost but I have some savings to pay that quick before generating any high fees.
So is basically like I pay now 8k to save 7k along the next 5 years,kind of putting my money to work to generate a 40-45% revenues ( as savings) on the next 5 years.
I know I am answering my own questions but I am wondering if there is still something else I am missing

I don't know the particulars of your situation like the amortization period (20 yr? 25 yr?) or how much of the principal you have paid off - otherwise it's a simple matter to estimate your savings using a spreadsheet to determine if there are advantages to each scenario.

Let's say your amortization period is 25 years and you were up for renewal every 5 years. You are into year 6 and have 4 more years before renewal (which you can get today at 1.97% but may be higher/lower if you wait 4 years). Just make sure when renewing your mortgage that the amortization period is decreased to 19 years (25 minus 6). Otherwise you will be paying a whole lot more in interest over an extra 6 years and the bank is counting on that.

Bank employees get their bonuses for writing up new mortgages and extending the period over which you are indebted to the bank. That is their primary motivation, not necessarily helping you save money.

If you have an extra $8620.37 to pay the penalty, in my opinion it's better spent making a lump sum prepayment on the principal if permitted by the terms of your mortgage.