Author Topic: Canadian fixed Mortgage: Should I refinance to access a lower rate 3 years in?  (Read 658 times)

Rockies

  • 5 O'Clock Shadow
  • *
  • Posts: 48
  • Age: 35
  • Location: Alberta, Canada
Hi people,

I am hoping I can get some advice on whether it makes sense to refinance my mortgage to access a better rate. I've found low rates on ratehub.ca through CanWise financial.

Current situation:

     Home Value: 425,000
     Outstanding mortgage balance: 210,000
     7 Year fixed mortgage rate: 3.59%
     Home was purchased in mid 2018 (I put about 45% down on it)

I am 2.5 years into my 7 year fixed mortgage with a major bank with a total ammortization period of 25 years (only 22.5 long years before its paid off).  I am a first time home owner.

Would it make sense to refinance on a 5 year fixed at this point at a rate of 1.79%?  I found this calculator: https://www.ratehub.ca/mortgage-refinance-calculator and it looks like I can save a bit of money, but the calculator is limited in that you can only run it for a 5 year or a 10 year fixed (not my oddball term length of 7 years).

If anyone in Canada has done this what are some potential pitfalls to avoid? Is refinancing a giant pain in the ass?

Has anyone used the alternative lenders available like CanWise Financial? It looks like the lowest refinancing rates that big banks offer are about 2.10%, which is still considerably lower than my current rate.

Any information is much appreciated.

ToTheMoon

  • Pencil Stache
  • ****
  • Posts: 664
  • Location: BC
#1 - the posted rates are just a starting point and if you look like a good client for them, they will likely do better.

#2 - consider variable rates; we are two and a bit years into a 5 year variable and are currently paying 1.7%*

#3 - the IRD or interest rate differential (which is their fancy way of saying PENALTY) that you will have to pay is really going to decide this for you. There is usually a sheet at the very back of your mortgage document that shows how to calculate this, and/or call your mortgage holder and have them tell you the current number.

Then you can run some numbers to see when you break-even point is, and whether it is worthwhile. (Keep in mind the costs to set up a new mortgage such as appraisal fees etc.)

Hope that helps get you started,

TTM

*I am trying to figure out how I can do a cash out refinance to increase my mortgage while rates are like this!

BNgarden

  • Bristles
  • ***
  • Posts: 321
  • Location: Alberta
One other possible route is to try a 'blend and extend' with current mortgagor, where they combine the remaining years at current rate with new extension to original term with the new rate.  Not the very best rate overall obviously, but they 'might' not charge the IRD penalty then? 

Not sure if your mortgagor will offer such a thing, or if banks' increased caution means this is no longer an option.  (Been out of the market myself for a while, but DD is considering refinancing also.)

Rockies

  • 5 O'Clock Shadow
  • *
  • Posts: 48
  • Age: 35
  • Location: Alberta, Canada
ToTheMoon - the rates I am referring to are much discounted from the posted rates, I am finding them on ratehub.ca. Same goes with my current rate of 3.69 which was discounted significantly from the posted rate.  Thanks for the tip about IRD, it does look like I could save a bit after running the calcs.

BNgarden - Thanks for the blend and extend tip, I didnt know that was possible! I read into it a bit more and it does look like it is possible.

Retire-Canada

  • Walrus Stache
  • *******
  • Posts: 7898
I've never broken a mortgage term in Canada, but if your current rate is close to 4% I would certainly look into it. Talk to your current lender and see what they can do for you. They would likely offer the most favourable terms for the change if you are sticking with one of their products. Depending on the alternate rates they can offer it may be worth looking at just breaking the mortgage contract and paying the related fees....which should be spelt out in your mortgage documents.

I'd second the suggestion for considering a variable rate mortgage...assuming you get offered a low enough rate. I've had one since I bought this house in 2010 and been very happy.