What does it really cost to rewrite a mortgage?
43% of Canadians say that a 2% hike in interest rates would leave their ability to afford their home on unsure footing, according to a recent BMO report. Which is why it makes sense to cut that principal where you can.
The good news is that 36% of Canada's mortgage holders are making accelerated mortgage payments, according to data from the Canadian Association of Mortgage Professionals.
That includes 16% who increased their monthly payments, 17% who made lump-sum payments and 5% who increased the frequency of their payments. A few even used used more than one of these approaches to whittle things down.
Numbers on those who've renegotiated altogether are a bit harder to come by, largely because most financial institutions are in no hurry to talk about consumers rewriting deals.
Now, however, new guidelines on the penalties for getting out of an existing mortgage may make that process a bit clearer.
The cost on refinancing varies between lenders but all of them want to recoup the difference between today’s interest rate and what they would have earned if the mortgage loan had continued until maturity.
The penalty is generally the greater of three months’ interest or the interest rate differential. But getting a handle on that number can be tricky.
Last month, the Federal Government published a Mortgage Prepayment Code. The Code will guide all federally regulated institutions in how they communicate the IRD to borrowers and how they arrived at the numbers.
As it stands now, some lenders are tougher to deal with than others. Some will calculate a penalty of three month’s interest based on the actual interest rate you have, while others will try to use the higher posted rate that almost nobody actually ever signs on for.
Not sure what you're getting in to? Try this calculator to look at your own situation.
Have you renegotiated your mortgage recently? How did you fare whem it came to the IRD? Do you use any prepayment/acceleration techniques to reduce your debt?
By Gordon Powers, MSN Money
Posted by: too true | Apr 2, 2012 2:38:29 PM
Paying things down as quickly as possible only makes sense. I suspect most people are doing something along these lines. But renegotiating is tricky as the IRD seems to be a moving target. Banks have reduced the spreads between their posted and discounted rates over the past few years….and this makes a big difference. Get a broker to do the numbers for you rather than simply listening to what the bank is telling you.
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