Sunday, March 8, 2009

Is Now a Good Time To Refinance Your Mortgage?

With mortage rates down, a lot of people who have fixed rate mortgages at a higher rate are wondering if now is a good time to refinance their mortgage to get a lower rate. Generally I believe it is NOT, but the first thing you need to do is find out what your penalty will be to get out of your current mortgage. To get out of your mortgage, most institutions charge three months interest or the interest rate differential, whichever is greater. The interest rate differential (IRD) takes into account the difference between your contract rate, the number of months remaining in the contract and current rates. Note that the lower rates get the bigger the penalty (IRD) gets. Don't make the mistake of comparing your fixed rate mortgage with variable rates. No-one can tell for sure where rates will be in one or two years. If you choose to go with a variable rate, know that there are risks and be sure you are prepared to live with potential fluctuations in rates.

Once you know what your penalty will be, it's worth asking your lender what alternatives, if any, they are willing to offer you. You might be able to get a lower rate by negotiating an early renewal. By blending and extending your contract with today's lower rates you might be able to avoid the penalty altogether.

It might be worth refinancing if you have other debt outside the mortgage at higher rates that you would like to consolidate into your mortgage. Find out what your bank is willing to do for you, then seek the advice of an independent mortgage specialist to make sure you're getting your best deal.

Bank vs. Mortgage Broker

I recently spoke with some new clients who didn't understand why they would want to use a mortgage broker to arrange their mortgage when they could qualify for a mortgage at a bank. More and more people are turning to mortgages brokers for choice, service and competitive pricing.

I put together the following matrix to summarize the differences and advantages of using a mortgage broker.

Click here to view the matrix in PDF.

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Do you need help with a mortgage? Call me at 416 876 2031.