Personal Finance

Mortgage prepayments and renewals/refinancing

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  • Sep 21st, 2021 9:24 pm
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[OP]
Jr. Member
Jul 8, 2018
127 posts
93 upvotes
Toronto

Mortgage prepayments and renewals/refinancing

Hi, I have two semi-related questions about mortgages.

1) My mortgage allows prepayments. I have cash available to make significant prepayments but I'll want that money back for other uses when my mortgage term is up. Would it make a difference between a renewal and a refinance if I want to increase the amount of the mortgage (by the amount of the prepayment) to get the money back out?

2) When I refinance or renew, I want to remove the co-signer from the mortgage. Is it possible to do that with a mortgage renewal, or does that require a refinance?

Thanks for any help.
6 replies
Deal Fanatic
Apr 5, 2016
5889 posts
4334 upvotes
Calgary/Vancouver
BMO allows you to park your prepayments separately in a mortgage cash account for a conventional mortgage. This amount though may go down if you're on variable rate and interest rates goes up or if you extend amortization. AFAIK, I don't think any other bank allows this.

If you want to take equity back out, it will be a refinance. When refinancing, full credit application will be done again and stress test applies. The same goes for if you want to remove cosigners.
Deal Fanatic
Jul 26, 2007
6568 posts
4100 upvotes
Toronto
You are describing how HELOC works. You pay more into your mortgage/HELOC, more funds are freed to use. Problem is that when you lock in your rate within the HELOC, some banks like TD, you can only double up the schedule payment and able pay lumpsum 15% annually.

You would also need to reapply to get HELOC so don't include a cosigner. Best time to do this is when your mortgage term is up to avoid penalties, but sometimes you can move from standard mortgage to mortgage within HELOC without having to pay penalty.
[OP]
Jr. Member
Jul 8, 2018
127 posts
93 upvotes
Toronto
bomber17 wrote: BMO allows you to park your prepayments separately in a mortgage cash account for a conventional mortgage. This amount though may go down if you're on variable rate and interest rates goes up or if you extend amortization. AFAIK, I don't think any other bank allows this.

If you want to take equity back out, it will be a refinance. When refinancing, full credit application will be done again and stress test applies. The same goes for if you want to remove cosigners.
Unfortunately, I already have a (non-BMO) mortgage, so it sounds like I'll need to refinance if I want to get that money back out.
peteryorkuca wrote: You are describing how HELOC works. You pay more into your mortgage/HELOC, more funds are freed to use. Problem is that when you lock in your rate within the HELOC, some banks like TD, you can only double up the schedule payment and able pay lumpsum 15% annually.

You would also need to reapply to get HELOC so don't include a cosigner. Best time to do this is when your mortgage term is up to avoid penalties, but sometimes you can move from standard mortgage to mortgage within HELOC without having to pay penalty.
What I want is similar to a HELOC, except I only need to take money back out when my mortgage term expires. Plus, I believe I would pay a higher interest rate on a HELOC than I would by simply refinancing and including it in the mortgage, so it doesn't seem ideal.
Deal Fanatic
Jul 26, 2007
6568 posts
4100 upvotes
Toronto
KyleTO wrote: What I want is similar to a HELOC, except I only need to take money back out when my mortgage term expires. Plus, I believe I would pay a higher interest rate on a HELOC than I would by simply refinancing and including it in the mortgage, so it doesn't seem ideal.
My mortgaged portion of the HELOC is same rate as standard mortgage rate.

When my mortgage term is due, I would check the regular mortgage rates on the web, and I would ask that % per year. All the bank do is remove that portion of the mortgage from my HELOC and lock in the rate and term. Never higher then posted rate for past 20 years. Actually lower because I always negotiate for even lower rate when I go in to the branch.
Deal Addict
Feb 25, 2007
1424 posts
880 upvotes
Ottawa
In general, both will require a refinance.

For 1), if you happen to have a combined mortgage+HELOC that is readvanceable, then a prepayment of the mortgage will translate into more room on the HELOC. You may then be able to restructure the components (mortgage vs HELOC) at renewal time without going through the refinance process. Ymmv, may even be inconsistent by institution. But that is a special case.
[OP]
Jr. Member
Jul 8, 2018
127 posts
93 upvotes
Toronto
peteryorkuca wrote: My mortgaged portion of the HELOC is same rate as standard mortgage rate.

When my mortgage term is due, I would check the regular mortgage rates on the web, and I would ask that % per year. All the bank do is remove that portion of the mortgage from my HELOC and lock in the rate and term. Never higher then posted rate for past 20 years. Actually lower because I always negotiate for even lower rate when I go in to the branch.
I didn't realize this was possible, thank you for sharing.
houska wrote: In general, both will require a refinance.

For 1), if you happen to have a combined mortgage+HELOC that is readvanceable, then a prepayment of the mortgage will translate into more room on the HELOC. You may then be able to restructure the components (mortgage vs HELOC) at renewal time without going through the refinance process. Ymmv, may even be inconsistent by institution. But that is a special case.
I unfortunately don't even have a HELOC, but I will look into this when/if I refinance at a bank that allows it.

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