Real Estate

Should I Take This Renewal?

  • Last Updated:
  • Aug 29th, 2020 6:10 pm
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[OP]
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Nov 28, 2019
274 posts
118 upvotes

Should I Take This Renewal?

Hi

I just got an email from my bank (BNS) where I have my mortgage from with a chance to early early renew

Current

2.59% - 5 year fixed
Maturity - 1 year and 10 months
Outstanding amount - 140K
Total Term Left - 10 years

Proposed

Term - 2.2421% new 5 year fixed.

I know interest rates will most likely be for the next 2 years so in theory I should be able to get a pretty low rate once my 5 years ends. However since it is almost 2 years earlier maybe it is worth it since I am saving $600 over those 2 years.

I looked into breaking my contract and going to like tangerine or something for their 1.99% fixed but I think with the fees it did not make really that much sense (since I would have to pay that differential amount since my rate is higher than currently) but I would have to calculate it again.

Another concern of mine right now I can't say for certain that I will be at my current home for the next 5 years. I was hoping to actually buy a new place next year but with covid and such I have no clue if that is even remotely going to happen. I would first try rent out my place if possible but all of this depends on what my company decides with remote work(ie can I move further away where I could keep an investment property but also buy a new place).

Also if someone can recommend me a mortgage breaking fee calculator that takes in account rate differential that would be great too.
24 replies
Deal Addict
User avatar
Mar 23, 2003
4336 posts
1068 upvotes
Hamilton
See if you can go variable if you're considering breaking early and might sell down the road without missing out on today's great low rates.

That way when/if you break early the penalty will be pretty low.
jimbob12341 wrote: Hi

I just got an email from my bank (BNS) where I have my mortgage from with a chance to early early renew

Current

2.59% - 5 year fixed
Maturity - 1 year and 10 months
Outstanding amount - 140K
Total Term Left - 10 years

Proposed

Term - 2.2421% new 5 year fixed.

I know interest rates will most likely be for the next 2 years so in theory I should be able to get a pretty low rate once my 5 years ends. However since it is almost 2 years earlier maybe it is worth it since I am saving $600 over those 2 years.

I looked into breaking my contract and going to like tangerine or something for their 1.99% fixed but I think with the fees it did not make really that much sense (since I would have to pay that differential amount since my rate is higher than currently) but I would have to calculate it again.

Another concern of mine right now I can't say for certain that I will be at my current home for the next 5 years. I was hoping to actually buy a new place next year but with covid and such I have no clue if that is even remotely going to happen. I would first try rent out my place if possible but all of this depends on what my company decides with remote work(ie can I move further away where I could keep an investment property but also buy a new place).

Also if someone can recommend me a mortgage breaking fee calculator that takes in account rate differential that would be great too.
[OP]
Member
Nov 28, 2019
274 posts
118 upvotes
sidshock wrote: See if you can go variable if you're considering breaking early and might sell down the road without missing out on today's great low rates.

That way when/if you break early the penalty will be pretty low.
Yea I can ask about that, I am also going to ask if I can also switch to collateral as I am weighing the pros and cons of that right now as well.

At first I was leaning towards not accepting this offer but now I am not too sure, as say if I renew and then in a year I break it, I think I still would be better of then keeping my current mortgage and breaking that in a year but I really need to first figure out how to calculate all the fees associated.
Deal Addict
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Mar 23, 2003
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jimbob12341 wrote: Yea I can ask about that, I am also going to ask if I can also switch to collateral as I am weighing the pros and cons of that right now as well.

At first I was leaning towards not accepting this offer but now I am not too sure, as say if I renew and then in a year I break it, I think I still would be better of then keeping my current mortgage and breaking that in a year but I really need to first figure out how to calculate all the fees associated.
If you want access to the equity (heloc) I don't see why that's a problem as long as your ratios are in line and you pay the break / discharge fee etc.

Speak to a broker.
Refinance rates 5yr fixed are about 1.74 right now from what I've heard.
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Aug 20, 2020
361 posts
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Scarborough
Can you share the penalty to break out of your mortgage? Call the lender BNS to gather that. Then I can advise if it makes sense to break or not.
Neil Joseph
Mortgage Agent, Broker Lic #10530
[OP]
Member
Nov 28, 2019
274 posts
118 upvotes
sidshock wrote: If you want access to the equity (heloc) I don't see why that's a problem as long as your ratios are in line and you pay the break / discharge fee etc.

Speak to a broker.
Refinance rates 5yr fixed are about 1.74 right now from what I've heard.
Well I am basically 2 years away from my term ending so I don't think have lots of options for refinancing other than this (since I won't be paying any penalties by renewing with them).

Even if I got this 1.74% rate at a different bank I think I still would lose $434 by switching to that rate since of all the penalties I would have to pay. Then I forgot to mention that I lose my job to covid so had to find a new job and am now in probabtion so pretty much good game in trying to switch right now for me.

So I think my leverage is very small (Can't really switch to a new bank as won't save anything, even if I somehow did I would not qualify for it since new job and finally I got a pretty small mortgage which usually means you don't get the best best rates).

I only see 2 options, take whatever they give me as I should not have to re qualify or wait the 2 years and hope I have more options.
[OP]
Member
Nov 28, 2019
274 posts
118 upvotes
NeilJoseph wrote: Can you share the penalty to break out of your mortgage? Call the lender BNS to gather that. Then I can advise if it makes sense to break or not.
I sent a email to the guy who reached out to me about this, I used ratehub calculator and it came out with $2,143 penalty but not sure how accurate it is.

I will update once I get the official number back, but like I said in my above post options are limited to me since if ratehub is correct and that is the fee then I need a very low refinance rate to make it worth it and then since being forced to switch companies due to covid makes is it even hard or impossible to do.
Member
User avatar
Aug 20, 2020
361 posts
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Scarborough
jimbob12341 wrote: I sent a email to the guy who reached out to me about this, I used ratehub calculator and it came out with $2,143 penalty but not sure how accurate it is.

I will update once I get the official number back, but like I said in my above post options are limited to me since if ratehub is correct and that is the fee then I need a very low refinance rate to make it worth it and then since being forced to switch companies due to covid makes is it even hard or impossible to do.
sure.. you can get rates under 2% for owner-occupied properties.
Neil Joseph
Mortgage Agent, Broker Lic #10530
[OP]
Member
Nov 28, 2019
274 posts
118 upvotes
NeilJoseph wrote: sure.. you can get rates under 2% for owner-occupied properties.
Never said you can't, tangerine has 1.99% right now. If I ratehub is correct with the fees I would need a rate of 1.5% to come out slightly ahead which I really doubt I could get such a rate.

Anyways waiting to hear back from the agent to see what the actual fee is and what options I have (ie can I switch to a variable, can I switch to collateral and etc).

I am also in BC if that makes a difference.
[OP]
Member
Nov 28, 2019
274 posts
118 upvotes
NeilJoseph wrote: Can you share the penalty to break out of your mortgage? Call the lender BNS to gather that. Then I can advise if it makes sense to break or not.
Ok, so I got a response back from the agent. So ratehub is wrong with the penalty as it is even worse at $3,200 penalty.

I cannot switch to a variable rate mortgage without breaking my mortgage and paying the $3,200. I can do a collateral mortgage but I have do all re-qualifications for it.

So what do you think I should do take this offer or wait 2 years and switch?
Last edited by jimbob12341 on Aug 25th, 2020 6:51 pm, edited 1 time in total.
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Aug 20, 2020
361 posts
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Scarborough
It doesn't make sense to switch at this point unless rates drop further (considered 1.79% for the analysis) and your penalty doesn't increase proportionately. So, I would recommend to HOLD for now.
Neil Joseph
Mortgage Agent, Broker Lic #10530
[OP]
Member
Nov 28, 2019
274 posts
118 upvotes
NeilJoseph wrote: It doesn't make sense to switch at this point unless rates drop further (considered 1.79% for the analysis) and your penalty doesn't increase proportionately. So, I would recommend to HOLD for now.
Yeah I don't think it makes sense to switch to another lender, but how about taking my current lenders offer of 2.2421% by signing a new 5 year fixed term with no fees for doing this.. Or are you saying I should keep what I have and wait it out for the next 2 years and once my term is up see what my options are?

I have to re-read my terms so maybe I am not understanding this correctly but say if rates would go down and I had 1 year left on my current mortgage (2.59%) or 4 years (2.2421%) left of this new mortgage renewal would I not be paying actually less on the 4 year mortgage as I would be at a lower rate and since I did not increase my mortgage amount the interest should be still the same for those 3 months?

Edit

I don't have my exact terms as I can't find them (requested it again) but I read the terms on ratehub and I see with IRD it calculates the number of month remaining on your mortgage if the rate is lower than what you signed up for (I guess if the rate is higher than your then it is just the straight 3 months?)

So I guess hold for now then.
Member
User avatar
Aug 20, 2020
361 posts
63 upvotes
Scarborough
jimbob12341 wrote: Yeah I don't think it makes sense to switch to another lender, but how about taking my current lenders offer of 2.2421% by signing a new 5 year fixed term with no fees for doing this.. Or are you saying I should keep what I have and wait it out for the next 2 years and once my term is up see what my options are?

I have to re-read my terms so maybe I am not understanding this correctly but say if rates would go down and I had 1 year left on my current mortgage (2.59%) or 4 years (2.2421%) left of this new mortgage renewal would I not be paying actually less on the 4 year mortgage as I would be at a lower rate and since I did not increase my mortgage amount the interest should be still the same for those 3 months?

Edit

I don't have my exact terms as I can't find them (requested it again) but I read the terms on ratehub and I see with IRD it calculates the number of month remaining on your mortgage if the rate is lower than what you signed up for (I guess if the rate is higher than your then it is just the straight 3 months?)

So I guess hold for now then.
I would not advise signing up for a new 5-year term at the 2.2321% rate offered by your current lender as you will lock yourself into a high rate for even longer. Mind you that this new rate is already at over 40bps costlier than a switch option. While you would save in the next 2 years as compared to the current mortgage; you might end up even worse off for the latter 3 years.
Instead, check for another alternative with the lender.. are they willing to offer a variable rate / different term etc?
Neil Joseph
Mortgage Agent, Broker Lic #10530
[OP]
Member
Nov 28, 2019
274 posts
118 upvotes
NeilJoseph wrote: I would not advise signing up for a new 5-year term at the 2.2321% rate offered by your current lender as you will lock yourself into a high rate for even longer. Mind you that this new rate is already at over 40bps costlier than a switch option. While you would save in the next 2 years as compared to the current mortgage; you might end up even worse off for the latter 3 years.
Instead, check for another alternative with the lender.. are they willing to offer a variable rate / different term etc?
Yeah, I was misunderstanding IRD and how it works as first it seemed like no downside but if rates go lower it might cost me more to break as I will have more years left to be part of the calculation.

I can ask for other alternatives (the alternative would have to wave the fees) though all the alternatives I am guessing would require to be approved all over again and that is a problem as like I said I started a new job and have not even passed probation yet and I was always understood you need like a year of employment or at the very least pass probation..

If I would go variable can you port variable mortgages?
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Aug 20, 2020
361 posts
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Scarborough
jimbob12341 wrote: Yeah, I was misunderstanding IRD and how it works as first it seemed like no downside but if rates go lower it might cost me more to break as I will have more years left to be part of the calculation.

I can ask for other alternatives (the alternative would have to wave the fees) though all the alternatives I am guessing would require to be approved all over again and that is a problem as like I said I started a new job and have not even passed probation yet and I was always understood you need like a year of employment or at the very least pass probation..

If I would go variable can you port variable mortgages?
Once you are in a variable rate mortgage, you can break it with a pre-payment penalty of just 3 months interest and switch lenders. The penalty should be a few hundred dollars in your case given the low outstanding balance.

As far as employment is concerned, if you are salaried then you need to be in a permanent position. There is no requirement regarding the length of the current job. Criteria changes if you have an hourly or commission based income.
Neil Joseph
Mortgage Agent, Broker Lic #10530

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