Personal Finance

refinancing - why is my broker pushing for extension

  • Last Updated:
  • Sep 8th, 2021 4:59 pm
[OP]
Jr. Member
Nov 22, 2018
173 posts
77 upvotes
Mississauga - ON

refinancing - why is my broker pushing for extension

I'm talking to my mortgage broker about releasing some equity in my house to do some renos aclear off my credit cards
my ltv is currently about 60% and I have 20 years left and I am looking to get out approx 50% of the available equity


all the online calculators I use show this to be do-able, with lower interest rates than I got at the start of this term, plus I dont have to pay any insurance anymore (which I had to pay in this term due to my original downpayment being slightly less than 20% )
so my monthly payments will be less (5 yr fixed rate) over a new 20 or 25 year term and I get to finish my basement and clear my creditcard debts


however, my broker is pushing for it to be over a 30 year term, and this is what I am struggling to understand
I know I can switch to paying every two weeks, rather than monthly - which should knock about 4 years off the payment period
but why would he push for adding 10 years to my mortgage ? whats in it for him for me to have a longer term?
5 replies
Deal Addict
May 16, 2017
1829 posts
2321 upvotes
You should do another calculation on what your payments might look like AFTER that 5-yr fixed is up with higher interest rates - do your own stress test.

Also, don't confuse TERM with AMORTIZATION. Your term is 5 years, your amortization is 30.

The broker gets a cut - so anything to keep you paying a higher proportion of interest for longer is good for the broker. But, as above, the broker may be looking at future stress test and whether you'll be able to renew/refinance after 5 years.
Deal Addict
User avatar
Feb 3, 2005
4406 posts
680 upvotes
Georgetown
I'm not sure why your broker is pushing for the longer amortization - perhaps there is some small advantage to their fee if they do so. But I doubt it would be that much so perhaps they are just making a good suggestion to you.

I will say this - I personally went with a longer amortization on my mortgage to give flexibility and to create a safety net of sorts. However, I also knew I had the discipline to not spend my excess money on other "stuff", and I committed to making overpayments routinely (ie. I'm a saver who prioritized paying down my mortgage - or another way to look at it is I lived within a budget where I knew I was going to make lump sum payments on the mortgage to effectively pay it off at a higher rate that I was required to).

In my case, I took a 29 year amortization to get the payments to a nice low, easy to pay amount. However, I paid about double the required amount annually on average, and paid off the entire mortgage in about 11 years. Some years I paid a bit less as other expenses came up (buying a car, building a fence/deck, replacing the shingles, etc.), and others I paid a bit more. If a disruption occurred to my income I had a nice cushion, etc.

If you need the mortgage structure itself to enforce your budget, you pick the amortization that makes the payments the size you want. If you can manage the budget and trust yourself to be fiscally responsible (whatever that means to you), then I personally think you go with a long amortization to give yourself maximum flexibility and then make lump sum payments on the mortgage every year (effectively pay it off over a much shorter amortization - but not be committed to a rigid, higher payment... just in case)
Deal Addict
Jan 15, 2017
4329 posts
3913 upvotes
Ottawa
As a former mortgage agent the only reason that I can think of to push for a longer amortization is to meet qualification conditions. Mortgage agents commission isn't tied whatsoever to amortization so your broker won't make any more commission with a 10, 15, 25, or 30 year amortization.

Be very wary of any online calculators. I haven't seen any yet that were accurate.
Member
Dec 13, 2010
414 posts
484 upvotes
Vancouver
Few thoughts for you to consider:

1. If your original mortgage was CMHC insured, that means your mortgage will remain insured (you don't have to pay insurance again), as long as you just keep renewing and following the previous amortization. This gives you the best mortgage rates, as CMHC insured mortgages are considered lower risk.

2. However, if you refinance, as you are thinking of, you will lose the CMHC insurance. This is not necessarily a deal-breaker, but something you should consider and ask about before you refinance (e.g., what would the difference in mortgage rate be if you just renewed vs. refinancing).

3. An option you may consider is keeping your CMHC insurance and renewing your mortgage term - plus add a HELOC alongside. This should allow you to keep the lower mortgage rates while still giving you access to your home equity for debt consolidation and renovations. HELOC are revolving credit, so will be at a higher interest rate (usually prime +0.5%), but you have the option of paying interest only and are not on a set schedule for payback. Once you finish your renovations, you can convert your HELOC balance into another mortgage term, to access the lower interest rates
Deal Fanatic
Apr 16, 2007
8073 posts
3372 upvotes
Financial District B…
EndeavourX wrote: I'm talking to my mortgage broker about releasing some equity in my house to do some renos aclear off my credit cards
my ltv is currently about 60% and I have 20 years left and I am looking to get out approx 50% of the available equity


all the online calculators I use show this to be do-able, with lower interest rates than I got at the start of this term, plus I dont have to pay any insurance anymore (which I had to pay in this term due to my original downpayment being slightly less than 20% )
so my monthly payments will be less (5 yr fixed rate) over a new 20 or 25 year term and I get to finish my basement and clear my creditcard debts


however, my broker is pushing for it to be over a 30 year term, and this is what I am struggling to understand
I know I can switch to paying every two weeks, rather than monthly - which should knock about 4 years off the payment period
but why would he push for adding 10 years to my mortgage ? whats in it for him for me to have a longer term?
To meet TDSR/GDSR qualifiers. This pandemic has changed everything
While you say you will clear your CC obligations the mortgage holder does not really know that. Many say, some do.
Your reassessment includes your current CC balances.
Try clearing them all first then reapply. Should get a better decision

As I said, this pandemic has changed everything.
Pre-pandemic, if an applicant said he makes $XYZ we would just perform basic tdsr calcs and decision the app.
Now if he/she says same income we have to examine and scrutinize all aspects of employment status including the type of employment itself.
Example: people working in hospitality (rest, hotel, service ind) will most likely be denied than same app with same income that works in health care industry.
----------------------------Licensed Credit Bureau member, S1, FI Automotive, CCP forums most banned = x 13 and counting, guess who that is?... stomped to the curb once again

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