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.
