Personal Finance

Mortgage Penalty and Renewal

  • Last Updated:
  • May 5th, 2020 10:43 pm
[OP]
Jr. Member
Sep 25, 2016
131 posts
29 upvotes

Mortgage Penalty and Renewal

HI All,

I'm currently 1 year and 5 months into my 5 year fixed term collateral mortgage 3.49%.

Should I pay the penalty and renew at a lower rate now or wait?
6 replies
Deal Addict
Jul 7, 2016
2980 posts
3331 upvotes
wait it out it will still be low in a few years as the bank of Canada doesn't want too much people go bankrupt they have to insure.
Sr. Member
User avatar
Oct 17, 2004
707 posts
379 upvotes
Toronto
tt1688 wrote: HI All,

I'm currently 1 year and 5 months into my 5 year fixed term collateral mortgage 3.49%.

Should I pay the penalty and renew at a lower rate now or wait?
Ask your current lender about blended rates. You will need to pay a penalty to break mortgage but for blended rate, you won't need to.
I'm too poor to buy crap
Jr. Member
User avatar
Dec 6, 2008
128 posts
78 upvotes
Canada
It comes down to your expectations on interest rates in the future, the penalty amount, the rate the bank is prepared to offer now, and, if you are considering changing banks, the mortgage transfer fee(s) that might also apply. I would start with my bank, get them to give me the numbers, then perhaps check other banks or a mortgage broker. And yeah, wrong forum. Good luck on your predictions - even Warren Buffett has been challenged to make the right call in this environment (see recent articles about his purchase / sale of airline stocks).
Deal Addict
User avatar
Aug 25, 2009
1933 posts
1496 upvotes
tt1688 wrote: HI All,

I'm currently 1 year and 5 months into my 5 year fixed term collateral mortgage 3.49%.

Should I pay the penalty and renew at a lower rate now or wait?
"The penalty" :facepalm:

I guess it all hinges on what the penalty is, what your break even point is based on the lower rate, etc....
Deal Fanatic
Apr 5, 2016
5048 posts
3576 upvotes
Calgary/Vancouver
mk316 wrote: Ask your current lender about blended rates. You will need to pay a penalty to break mortgage but for blended rate, you won't need to.
Blending in the rate doesn't mean you don't pay the penalty. They blend the penalty in to your rate as an extra yield. Still need to do a calculation to see if the difference in interest savings is worth it. Often times, paying the penalty up front saves you more in the long run.

Another option that's rarely mentioned. I know for BMO, if you can't pay the penalty, you can absorb up to $5000 into the mortgage balance and get the lower rate. This might be a better option than blend and extend depending on the discounts and rate.

Small tip: go back to the same person who closed your mortgage after at least a year (not the broker/MS, but the in branch rep/advisor/personal banker). He got comp'd initially for the first mortgage advance and any renewal he may get credit for as this would be considered a renewal. It's like treated like a bonus to him so he may be inclined just to give you the lowest possible rate since he already profited the first time. I seen a lot of personal banker do this. Also why I suggest building a relationship with a personal banker/branch manager as you can get away with a lot of things with this relationship.
Current Fido and Rogers customer.
Ex Koodo customer.

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