With rates at all-time lows you might be asking yourself, should I refinance my mortgage now?
The first thing you should consider when deciding if it’s the right time to break your mortgage and refinance is to ask yourself why are you breaking your mortgage? Are you wanting a lower interest rate? Do you want to reduce your monthly mortgage payments? If your’e reading this in 2021 then likely it’s to take advantage of a lower mortgage rate that is currently available on the market
If your mortgage is up for renewal, it’s almost always a good use of time to shop your mortgage to get the lowest mortgage rates
Whatever the case may be it’s always important to assess all the factors when making a decision. But, the first step begins with figuring out what your penalty is. You can either reach out directly to your bank, or ask your mortgage broker to calculate it for you (pssst we’re happy to run the numbers!)
Let’s take the example of refinancing for the sake of purchasing a property. Assume your mortgage penalty is $10,000. Woah, sounds steep right? Maybe you should wait until your term expires in 4 years and there is no penalty to break the mortgage. Well hold on fella, maybe that’s not a good idea if your goal is to buy a house in Toronto.
According to a recent report by TD Bank they are forecasting that Toronto will see home sale prices increase by 7.8% in 2020. In fact, the average price increase has been 10.2% over the past 5 years.
So from that data let us assume a modest price increase of 5% annually. And, let us also assume that today your plan was to refinance to access a downpayment so you can purchase a home for $750,000.
At a 5% annual increase, that $750,000 home will cost you $911,629 in 4 years time, when your term is up for renewal, saving you $10,000 in mortgage penalty but costing you $161,629 more to get the keys to that exact same property. So you see, that penalty has suddenly become a much cheaper option when compared to the alternative.
Sometimes it’s worth paying a little today to save a lot tomorrow.
Ready to see what you can afford?