Author Topic: Mortgage Renewal Trick: What am I missing?  (Read 1146 times)

ThreeWheeler

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Mortgage Renewal Trick: What am I missing?
« on: February 18, 2021, 08:14:04 AM »
Ok, so this isn't Canadian Tax but I don't see any other Canada specific finance group so I hope it's ok I post this here.

I came across this article on reddit:

https://martinsmoneymusings.substack.com/p/martins-mortgage-maneuver

The author claims that if you are in a fixed rate mortgage with a high rate you can break it at minimal (3 month interest) cost by:
1. Blending and extending your current mortgage. This, he claims, re-sets the rate that is used to calculate penalties.
2. Shop around for the lowest rate possible
3. Break the current mortgage and get the new one with only 3 month interest penalty.

Each step seems reasonable, the only thing I'm not sure about is the IRD being re-set when you blend and extend. Assuming this works I'm shocked I've never read bout it before as it seems like an incredibly powerful tool and really negates the risk of taking a fixed rate mortgage (for the borrower).

Does anyone see a problem with this approach? Anything that the author or I am missing?

Goldielocks

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Re: Mortgage Renewal Trick: What am I missing?
« Reply #1 on: April 16, 2021, 05:22:01 PM »
Mortgages longer than 5 years revert to 3month interest penalty only.  (the same penalty as variable rate mortgages).

Although 7+ yr mortgages have a high interest rate to account for this benefit, and they might build in fees at the time of blend and extend, so you need to shop the mortgages carefully and calculate your total costs.

I mean, they could tack on the IRD to the new longer mortgage principal, as a fee, right?  I can see some banks doing that and many people missing it.