Real Estate

Worth it to refinance my home? (details inside)

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[OP]
Deal Addict
May 16, 2013
1422 posts
261 upvotes
Toronto

Worth it to refinance my home? (details inside)

Since this is under the cover of anonymity, I don't mind divulging numbers to give a clearer pictures. Just need to know from the experts browsing this forum whether it's a good or bad move to even consider doing this.

We're on a 5-year fixed mortgage with BMO at 2.99% amortized to 25 years. We've got 2 years left and about 340K left to pay. After that, we'd be down to 20 years, if that matters. We pay every 2 weeks. I think they call it Accelerated 2 Weeks or something. Currently, BMO is advertising 2 types of "Smart Mortgages" ; a 2.49% one and a 2.51% one with APR. I don't know what APR means. Brokers outside of the big banks offer even lower rates.

1. Considering these factors, would it make sense to break the mortgage contract to refinance? Would we save money or actually lose some in the process?
2. Should I consider the BMO mortgage solutions or look for a broker instead? Plenty of websites show smaller brokers' rates.
3. What kind of penalties would I be looking at if I did break the mortgage contract?
4. What does APR mean and would you choose the APR BMO rate which is slightly lower or the non-APR lower one, if sticking with BMO?
5. "Lump Sum" is mentioned on websites for smaller brokers. Does that mean I'm required to pay one of (say) 10% of the total value left to pay on the house to join them?

Thanks for your knowledge, guys. It would be best to hear advice from experienced people who don't have anything to gain from us to get a clearer picture of what's in our family's best interests.
17 replies
Deal Addict
Apr 4, 2013
1274 posts
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We will need to know the current value of your home to determine whether or not you are eligible to refinance your mortgage.

APR stands for Annual Precantage Rate.

Will also need to know the type of mortgage that you currently have. Some mortgages cannot be brokered or refinanced except for a valid sale of the home.
Deal Addict
Jul 11, 2010
1186 posts
244 upvotes
Toronto
StratMangler wrote: Since this is under the cover of anonymity, I don't mind divulging numbers to give a clearer pictures. Just need to know from the experts browsing this forum whether it's a good or bad move to even consider doing this.

We're on a 5-year fixed mortgage with BMO at 2.99% amortized to 25 years. We've got 2 years left and about 340K left to pay. After that, we'd be down to 20 years, if that matters. We pay every 2 weeks. I think they call it Accelerated 2 Weeks or something. Currently, BMO is advertising 2 types of "Smart Mortgages" ; a 2.49% one and a 2.51% one with APR. I don't know what APR means. Brokers outside of the big banks offer even lower rates.

1. Considering these factors, would it make sense to break the mortgage contract to refinance? Would we save money or actually lose some in the process?
2. Should I consider the BMO mortgage solutions or look for a broker instead? Plenty of websites show smaller brokers' rates.
3. What kind of penalties would I be looking at if I did break the mortgage contract?
4. What does APR mean and would you choose the APR BMO rate which is slightly lower or the non-APR lower one, if sticking with BMO?
5. "Lump Sum" is mentioned on websites for smaller brokers. Does that mean I'm required to pay one of (say) 10% of the total value left to pay on the house to join them?

Thanks for your knowledge, guys. It would be best to hear advice from experienced people who don't have anything to gain from us to get a clearer picture of what's in our family's best interests.
Hello: The one main consideration as to whether it is worthwhile or not is to look at the total cost to break the mortgage compared to your savings. You will have the penalty from BMO plus lawyers fees (about $1000) + the mortgage discharge fee + an appraisal for the new lender (most mortgage agents here will cover part or all of it). Mortgage agents do not deal with BMO so we cannot estimate the penalty to break it. Your best bet is to call BMO and ask what it would cost to break your mortgage today. The big banks have much larger penalties than monoline lenders. You can only remortgage to 80% of the value of the property so the value of your property comes into play. The 10% lump sum is an option (which can be as high as 20%) and is the maximum amount of the original mortgage amount that you can prepay on your mortgage annually. To those that have extra money to put on the mortgage this is a huge bonus as it is applied directly to the principal and saves you more interest over the term. If your credit is fine there would be no charge to you to use a mortgage agent to obtain a loan from a lender. If you were to get your mortgage through a credit union there is a small membership fee ie $15 to join the credit union.
Doug Boswell
intelliMortgage Inc. Brokerage #12326
FSRA #MO09002332
[OP]
Deal Addict
May 16, 2013
1422 posts
261 upvotes
Toronto
cbr663 wrote: we will need to know the current value of your home to determine whether or not you are eligible to refinance your mortgage.

Apr stands for annual precantage rate.

Will also need to know the type of mortgage that you currently have. Some mortgages cannot be brokered or refinanced except for a valid sale of the home.
550k.
[OP]
Deal Addict
May 16, 2013
1422 posts
261 upvotes
Toronto
dougboswell wrote: Hello: The one main consideration as to whether it is worthwhile or not is to look at the total cost to break the mortgage compared to your savings. You will have the penalty from BMO plus lawyers fees (about $1000) + the mortgage discharge fee + an appraisal for the new lender (most mortgage agents here will cover part or all of it). Mortgage agents do not deal with BMO so we cannot estimate the penalty to break it. Your best bet is to call BMO and ask what it would cost to break your mortgage today. The big banks have much larger penalties than monoline lenders. You can only remortgage to 80% of the value of the property so the value of your property comes into play. The 10% lump sum is an option (which can be as high as 20%) and is the maximum amount of the original mortgage amount that you can prepay on your mortgage annually. To those that have extra money to put on the mortgage this is a huge bonus as it is applied directly to the principal and saves you more interest over the term. If your credit is fine there would be no charge to you to use a mortgage agent to obtain a loan from a lender. If you were to get your mortgage through a credit union there is a small membership fee ie $15 to join the credit union.
We bought it initially at 390K, have paid about 50K but the value of the property has since been readjusted by the city to almost 550K. We received a letter to that fact a mere 1-2 weeks ago. What would be your best educated guess as to how much it might cost to break it off? Just looking for ballpark figures to give us an idea. Nothing concrete.
Deal Addict
Jul 11, 2010
1186 posts
244 upvotes
Toronto
StratMangler wrote: We bought it initially at 390K, have paid about 50K but the value of the property has since been readjusted by the city to almost 550K. We received a letter to that fact a mere 1-2 weeks ago. What would be your best educated guess as to how much it might cost to break it off? Just looking for ballpark figures to give us an idea. Nothing concrete.
Hi StratMangler. Your property value suggests that you would be able to refinance without a problem. As mentioned in a previous reply you need to check that you can break the mortgage midterm. This type of clause, however, is usually with the lowest no-frills mortgage. You are probably OK with yours. Unfortunately I cannot give you even a ballpark figure for the penalty as we don't know how BMO calculates it. If you go back to your mortgage documents that you signed it should tell you the method that they use in the disclosure section. As I mentioned before the easiest way to get an accurate quote is to call the customer service branch for BMO. That number should be in the documents that you signed or in a package that you would have received after the mortgage closed.
Doug Boswell
intelliMortgage Inc. Brokerage #12326
FSRA #MO09002332
Banned
Mar 11, 2016
2081 posts
866 upvotes
your BMO penalty will likely be in excess of 10k....wait it out..rates are going nowhere...it is likely they will let you renew up to 6 mths early without any penalty or having to blend rates...just give the a call to explore options...
Deal Guru
User avatar
Mar 23, 2008
12212 posts
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Edmonton
Fjr2005 wrote: your BMO penalty will likely be in excess of 10k....wait it out..rates are going nowhere...it is likely they will let you renew up to 6 mths early without any penalty or having to blend rates...just give the a call to explore options...
This. The difference in your payments will be around $100 per month (340k principal @ 2.5% = $1523, 340k @ 2.99 = $1607 based on 25 year amortization). Total "over payment" = $84 * 24 = $2016. I'd wager money that your penalty for refinancing now will be more than that. But a simple call to BMO will get you your answer.

C
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User avatar
Feb 2, 2014
8869 posts
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Toronto
StratMangler wrote: Since this is under the cover of anonymity, I don't mind divulging numbers to give a clearer pictures. Just need to know from the experts browsing this forum whether it's a good or bad move to even consider doing this.

We're on a 5-year fixed mortgage with BMO at 2.99% amortized to 25 years. We've got 2 years left and about 340K left to pay. After that, we'd be down to 20 years, if that matters. We pay every 2 weeks. I think they call it Accelerated 2 Weeks or something. Currently, BMO is advertising 2 types of "Smart Mortgages" ; a 2.49% one and a 2.51% one with APR. I don't know what APR means. Brokers outside of the big banks offer even lower rates.

1. Considering these factors, would it make sense to break the mortgage contract to refinance? Would we save money or actually lose some in the process?
2. Should I consider the BMO mortgage solutions or look for a broker instead? Plenty of websites show smaller brokers' rates.
3. What kind of penalties would I be looking at if I did break the mortgage contract?
4. What does APR mean and would you choose the APR BMO rate which is slightly lower or the non-APR lower one, if sticking with BMO?
5. "Lump Sum" is mentioned on websites for smaller brokers. Does that mean I'm required to pay one of (say) 10% of the total value left to pay on the house to join them?

Thanks for your knowledge, guys. It would be best to hear advice from experienced people who don't have anything to gain from us to get a clearer picture of what's in our family's best interests.
Most mortgages are compounded semi-annually, so the contract rate is the "stated rate" and the APR is the "effective rate" taking in effect for compounding (finance 101 for the non-finance guys out there).

Until you call BMO and ask what the penalty is, it's impossible to answer your post. Once you find out the penalty, it's just simple math after (interest rate savings - penalty).
Kevin Somnauth, CFA
Principal Broker - First Toronto Mortgage - MA (Ontario #13176, BC #X301007)
Real Estate Salesperson - Century 21 Innovative
Sr. Member
Sep 9, 2008
618 posts
124 upvotes
Mississauga
Yeah fixed mortgages carry a huge IRD penalty. If you got two years left, looking at 10k at least!
Deal Guru
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Mar 23, 2008
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Edmonton
The Interest Differential is only for 3 months, IIRC... So it's not likely to be 10k. And if he sticks with BMO, he might just have to pay the difference between his old rate and the new one. But he really just needs to pick up the phone and call them.

C
Sr. Member
Sep 9, 2008
618 posts
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Mississauga
CNeufeld wrote: The Interest Differential is only for 3 months, IIRC... So it's not likely to be 10k.
3 months only for variable mortgages, not fixed. Just an example of my situation:

Maturity in 19 months with a fixed mortgage @ 2.89%. Current balance of 417k, gives me an IRD penalty of 12.8k!
Sr. Member
Mar 1, 2014
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CNeufeld wrote: The Interest Differential is only for 3 months, IIRC...
No, it's for the remaining term, in this case about 2 years.
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Mar 23, 2008
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Not according to BMO's "Prepayment calculator", posted earlier. If you put in 340k, 2.99%, fixed rate, it comes up with a number based on 3 months of interest.

C
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Sep 1, 2013
403 posts
96 upvotes
CdnRealEstateGuy wrote: Most mortgages are compounded semi-annually, so the contract rate is the "stated rate" and the APR is the "effective rate" taking in effect for compounding (finance 101 for the non-finance guys out there).

Until you call BMO and ask what the penalty is, it's impossible to answer your post. Once you find out the penalty, it's just simple math after (interest rate savings - penalty).
No, it's exactly the opposite.

APR of 3% = 3% compounded semi-annually = 1.5% every six months = 3.0225% effective annually

OP: APR is the quoted rate based on the legal "marketing" requirements. All mortgage rates are quoted in the same way, so you can actually compare them straight up.
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intr3peed wrote: No, it's exactly the opposite.

APR of 3% = 3% compounded semi-annually = 1.5% every six months = 3.0225% effective annually

OP: APR is the quoted rate based on the legal "marketing" requirements. All mortgage rates are quoted in the same way, so you can actually compare them straight up.
Ugh, it looks like you're right in this case (I re-read his post). On my mortgage approvals, lenders use the effective rate when disclosing the APR. After I googled APR, it can be effective or stated apparently (nominal APR or effective APR).
Kevin Somnauth, CFA
Principal Broker - First Toronto Mortgage - MA (Ontario #13176, BC #X301007)
Real Estate Salesperson - Century 21 Innovative
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Aug 2, 2010
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Here 'n There
As many have pointed out, the big factor here on switching mortgages is the cost of the interest penalty. People always seem to forget about it, think its a minor issue or some are even shocked there is a penalty. It's a major factor and the best way to find out the cost of the penalty is to just call your lender (but hey that would be too easy, just post a question on here instead!).

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