Should i pay penality and break my mortgage to get better rates

bomber17 wrote: ↑Yep break the term. I do it all the time when rates go super low. This is also why I only do variable so the penalty doesn't hurt as much.

kr0zet wrote: ↑Yes.

hyph3n wrote: ↑ So i have been with TD and paying at 3.74%. My monthly payment come down to ~$1580. My mortgage would expire in June 2023. Current balance is $317K. Total Mortgage was $450K. One of the real estate agent told me that they can get my condo appraised at $590K and i can take out ~$150K (happy path scenario).

The other day i went to see TD advisor and asked that what are the rates that they can offer and how much would be the penalty. The said that as of today, my penalty would be $10K. They can give me new mortgage at 1.35% (appraisal at $590K after their DD). This will make my monthly payment almost the same i.e., $1580 with $150K that i can use for future investment. they also mentioned that i chose to buy another house with this investment, they may be able to give me even better rate. (variable)

With bare-minimum understanding of mortgage math. it turns out that if i break mortgage now and get new rate, i will save around $20K in interest till June 2023. This 20K is > than the 10K penalty so in theory, i would come out as a winner.

The question is, should i break the mortgage and get a better rate or should i continue to keep paying.

realtorhome wrote: ↑ I took a look at your numbers and I don't think you'll be saving anything at all, IF my assumptions are correct.

Based on the numbers you provided, I had to figure out the other variables and made some assumptions. When you say your mortgage is 450k, do you mean your purchase was 450k, you put a downpayment and your mortgage was around 340k? Cuz to pay off 133k in equity over a few years is impressive, but the math doesn't work out. Judging from the 3.74%, that's around 3-4 years ago you got your mortgage.

If my assumptions are more or less correct, then the interest left you have to pay until June 2023 at 3.74% is 23k.

Second part of this scenario is 150k equity. You take that out and add it to your mortgage, making it 467k (317k + 150k), thus your amortization must be 30 year in order to get $1580 payment on 1.35%. The interest paid after two years (from now till June 2023 approx, so we can compare apples to apples) will be $12,200. Add the $10k penalty and your cost of the new mortgage is 22,200. Who's paying for the appraisal to refinance? Fee is about $250-300, but may be waived.

So ultimately, according to my calculations, you are saving $800. Is it worth the effort? It depends, if you have a great way to use that 150k equity and generate a return on it, then of course.

Doesn't your mortgage have a HELOC? if you need to access the equity, you should be able to get your property appraised, increase that line, and take the line out as emergency fund. You can even take it all out and roll it into the mortgage. There aer other considerations doing this such as when the term ends, you would want the term of both mortgages to line up so it does get rolled into one eventually.

bomber17 wrote: ↑ Yep break the term. I do it all the time when rates go super low. This is also why I only do variable so the penalty doesn't hurt as much.

hyph3n wrote: ↑ Hey, Thanks for your time. I think I may have not written original numbers correctly so here i am copying pasting. I am just trying to understand from someone neutral that would it make sense to break it or not.

Balance as of last payment: $317,007.93
Accrued Interest $0.00
Interest Rate 3.74%
Maturity Date Jun 01, 2023
Term Start Date Jun 01, 2018
Term 60 month(s)
Remaining Amortization Period 26 year(s),44 week(s)
Original Amortization Period 30 year(s)
Original Mortgage Amount $337,500.00
Bi-weekly payment: 715.41


So to summarize, I got this mortgage back in 2018 (after refinancing). My condo at that time got refinanced at 450K ... after paying debts etc, I got mortgage for 337,500 at 3.74% for 30 years. in last 3 years, my current balance is at 317,007.

Based on this, do you think i would still be at loss or wouldn't be saving much?

hyph3n wrote: ↑ if you don't mind, could you explain the math? I am going to see couple of more mortgage brokers (just doing window shopping) so i need to be prepared for this. thank you

realtorhome wrote: ↑ The calculations I had are more or less correct, my assumptions were right. One thing about banks, they are not there to save you money, they are there to make money. Do you really think you can one up the bank by breaking a mortgage and switching? The "catch" here is what ZxExN alluded to, the banks pass on the rate hike increase onto you via a variable rate. Mathematically, you may gain a few hundred switching, but that the price the bank is willing to pay to offset the rate increase risk.

Another thing is, and I asked this before, what will you do with the 150k equity. This literally means you will now have 150k cash in your bank account because you rolled it into your mortgage. From a Realtor's point of view, that's a great amount for downpayment for your next investment. The question thus becomes, are you ready to take on another investment property? If so, are you qualified to purchase a property with the downpayment you have (ie. have you maxed out your lending capacity)?

hyph3n wrote: ↑ So based on my current profile (i discussed this with TD as well), once i renew my mortgage (based on new condo value i.e. $590K), I would be eligible to have another mortgage for upto $900K. In happy path case, I will have $150K from the bank and i have saved up $30K on my own which adds up to $180K (20% downpayment). I have also saving some money in my wife's RRSP, i can utilize that too. I have to figure out the extra expenses (land transfer/lawyer etc) to buy a new property. This all is possible if the new property or my existing condo is rented out and i can show the rent etc.