Real Estate

# How much will I save? 5 year fixed: 2.72% vs 1.79%

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• Sep 2nd, 2020 5:58 am
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[OP]
Apr 18, 2013
3433 posts

## How much will I save? 5 year fixed: 2.72% vs 1.79%

Can someone please help me with this calculation on how much I'd save over a 5 year fixed mortgage? 15 year amortization.

Current mortgage is \$216,000 owing at a 5 year fixed 2.72%

New rate 5 year fixed at 1.79%

How much am I saving over the 5 year term? I pay bi-weekly if that makes a difference.
17 replies
Member
Jun 10, 2008
452 posts
Halton Hills
[OP]
Apr 18, 2013
3433 posts
I tried that and cannot figure it out. I'm normally excellent at finance but cannot figure this one out.
[OP]
Apr 18, 2013
3433 posts
I think it's around \$9,000 over the 5 years. Can anyone confirm?
Apr 13, 2006
1104 posts
Mississauga
Check your annual mortgage statement for the discount.
Also when was the mortgage start date? This would affect the posted rate.
[OP]
Apr 18, 2013
3433 posts
Dec 25, 2005
1436 posts
You haven't quite posted enough information, but a new \$216,000 mortgage with a 15 year amortization and bi-weekly payments @ 2.72% would result in a payment of \$672.24 bi-weekly. Total interest over a 5 year term would be \$25,023.00 and the balance at the end of the term would be \$153,631.80.

The same new mortgage @ 1.79% would result in a bi-weekly payment of \$629.75, interest of \$16,344.24 and an ending balance of \$150,476.74. The interest savings is \$8,678.76. The additional principal paid down is \$3,155.06.
[OP]
Apr 18, 2013
3433 posts
Nukey wrote: You haven't quite posted enough information, but a new \$216,000 mortgage with a 15 year amortization and bi-weekly payments @ 2.72% would result in a payment of \$672.24 bi-weekly. Total interest over a 5 year term would be \$25,023.00 and the balance at the end of the term would be \$153,631.80.

The same new mortgage @ 1.79% would result in a bi-weekly payment of \$629.75, interest of \$16,344.24 and an ending balance of \$150,476.74. The interest savings is \$8,678.76. The additional principal paid down is \$3,155.06.
Thank you so much! This is exactly what I was looking for! So if I put the extra interest saved towards the principle on a regular basis then the balance after 5 years would be around \$145,000 right?
[OP]
Apr 18, 2013
3433 posts
My penalty to make this change is around \$2700, so financially I think it still makes sense over the 5 years, right?
Sr. Member
Aug 20, 2020
518 posts
Scarborough
gbill2004 wrote: My penalty to make this change is around \$2700, so financially I think it still makes sense over the 5 years, right?
yes, it does make sense. Also, you may be able to get 1.74% for 5-year fixed, thereby increasing your savings!
Neil Joseph
Mortgage Agent, Broker Lic #10530
Newbie
Jun 17, 2010
53 posts
The savings is actually even a bit more, in the sense that there is less actual cash outlay from you if you look at the payment values posted above (\$629.75) vs (672.24). If you wanted to be technical about this, you would reduce the amortization from 15 years on the new mortgage of 1.79% (keep reducing it by trial and error) until the bi-weekly payment equals the same \$672.24. This way, when you're comparing ending balances and seeing which is better, you're are confident that the actual cash outlay over the 5 years from both scenarios is the same.

Most lenders allow you to "roll in/add in" penalties/fees of up to \$3K, so an additional exercise you can do is add in \$2.7K to the mortgage balance (\$218.7K), run the calculator at 1.79% and whatever amortization you need to choose to get the SAME payment of \$672.24. You will have adjusted for penalty, keeping the bi-weekly cash outlays the same, and can just directly compare ending balances (apples-to-apples).

In any event, it appears there are savings for you, but just wanted to clarify the calculation.
[OP]
Apr 18, 2013
3433 posts
padu2004 wrote: The savings is actually even a bit more, in the sense that there is less actual cash outlay from you if you look at the payment values posted above (\$629.75) vs (672.24). If you wanted to be technical about this, you would reduce the amortization from 15 years on the new mortgage of 1.79% (keep reducing it by trial and error) until the bi-weekly payment equals the same \$672.24. This way, when you're comparing ending balances and seeing which is better, you're are confident that the actual cash outlay over the 5 years from both scenarios is the same.

Most lenders allow you to "roll in/add in" penalties/fees of up to \$3K, so an additional exercise you can do is add in \$2.7K to the mortgage balance (\$218.7K), run the calculator at 1.79% and whatever amortization you need to choose to get the SAME payment of \$672.24. You will have adjusted for penalty, keeping the bi-weekly cash outlays the same, and can just directly compare ending balances (apples-to-apples).

In any event, it appears there are savings for you, but just wanted to clarify the calculation.
A little confusing but thank you!
Dec 25, 2005
1436 posts
gbill2004 wrote: Thank you so much! This is exactly what I was looking for! So if I put the extra interest saved towards the principle on a regular basis then the balance after 5 years would be around \$145,000 right?
In the example above, your payments will be lower by approximately \$42 bi-weekly, so you can take that money (around \$5k total) and put it toward the mortgage, if your mortgage allows increased payments. Even without doing that, you'll benefit from your balance at the end of the term being lower by around \$3,200 due to more money going toward the principle vs. interest, even with the lower bi-weekly payment.
[OP]
Apr 18, 2013
3433 posts
Nukey wrote: In the example above, your payments will be lower by approximately \$42 bi-weekly, so you can take that money (around \$5k total) and put it toward the mortgage, if your mortgage allows increased payments. Even without doing that, you'll benefit from your balance at the end of the term being lower by around \$3,200 due to more money going toward the principle vs. interest, even with the lower bi-weekly payment.
This is exactly why I asked this question; for insight like this. Thank you!
Nov 13, 2013
2368 posts
Ottawa
Did I miss something? How much time is left on your current 5 year mortgage? If your penalty is only \$2700 it doesn't sound like it's the full five years (or minus a few months). This changes your calculations in two ways. Remaining interest of course but also on the other end. If you have 2 years left for example you are very likely to get a very similar rate as now in 2 years whereas 5 years from now it is less known.
[OP]
Apr 18, 2013
3433 posts
fogetmylogin wrote: Did I miss something? How much time is left on your current 5 year mortgage? If your penalty is only \$2700 it doesn't sound like it's the full five years (or minus a few months). This changes your calculations in two ways. Remaining interest of course but also on the other end. If you have 2 years left for example you are very likely to get a very similar rate as now in 2 years whereas 5 years from now it is less known.
It's 5 months into a 5 year fixed term at 2.72%.
May 4, 2014
4671 posts