There are many great arguments for and against entering into a Variable Rate versus a Fixed Rate, but I won’t be chiming in on that debate today. Today’s post is for those who are in Variable Rates and are happy to remain.
One of the greatest benefits of a Variable Rate Mortgage is the Low and Predictable penalty to break it, which is typically 3 months of interest. Because of this, someone with a small discount such as Prime – 0.3% may be able to leave that mortgage and enter into a more competitive rate of Prime – 1% with minimal cost.
I have several lenders who will pay the legal fees and reimburse the appraisal costs for such a transaction. They can even capitalize up to $3,000 of the mortgage penalty into the new mortgage. This means that you can benefit from the rate savings at no out of pocket cost! As long as your mortgage stays on the same amortization schedule these new lenders can do what is called a [link url=”https://yourvancouvermortgagebroker.ca/renewals-transfers/://”]Mortgage Transfer[/link].
Here is a Quick Demonstration of a Transfer. Let’s say my client Gary entered into a Variable Rate in March 2016, when at the time banks were only discounting their Variable Rates by 0.3%. Here is how he saved money by transferring into a Variable Rate with a bigger discount.
2016 Starting Mortgage Balance: $375,000
Existing Mortgage Interest Rate: Prime – 0.3% (Currently 3.4%)
Existing Mortgage Payment: $1,852.53/month
Today’s Mortgage Balance: $349,205
Today’s Penalty (3 Months of interest): $2,954.76
New Mortgage Balance: $352,159.76
New Mortgage Rate: Prime – 1.0% (Currently 2.7%)
New Mortgage Payment: $1,724.52/month
Gross Savings in interest for the remainder of the original term: $5,800.97
Net Savings through the remainder of the original mortgage term (Gross Savings – Penalty to Break Mortgage): $2,846.21
So under this scenario, my client Gary has just saved himself $2,846.21 in interest by lowering his regular mortgage payment. He was able to do all of this at no out of pocket cost to himself, while working with me to organize his application.
If you think you could also save through a similar maneuver [link url=”https://yourvancouvermortgagebroker.ca/contact/”]Call Me Today[/link] for a free mortgage analysis. If I can save you money we can go ahead right away, or if you are best served by staying in your current mortgage I will tell you so, so you can have that peace of mind through the end of your term.
