Mortgage and LOC question
I am finishing up a renovation and have a very large mortgage
My parents were kind enough to lend us the majority of the reno money at 0 interest and payable over a long period of time
However with any good reno we went over the amount we were lent and I have decided to lock in all my debt for 10 years at 3.79 (was approved a number of months ago)
My question is wouldn't it be better to lock in all my debt at the 10 year rate (which I can break after 5 years) rather than keep some in an LOC at 3.65 which will most likely go much higher over the years - also for cash flow purposes it is easier to pay off quicker over the year
IMO, some of the factors to consider are:
Originally Posted by sagsal
a) how fast you think interest rates on the LoC will rise.
b) if there is cash flow to pay the LoC faster.
c) are there pre-payment privileges on the mortgage (how often, how much)
d) what are the costs to breaking the mortgage.
A friend though he'd do better with more on the LoC because he typically has a large bonus that let him pay more off of the LoC than the mortgage would. It worked because his LoC rate stayed low and his bonus was paid each year.
If cash flow is stable, then the mortgage is far more predictable.
Talk to your bank. They may allow you to do a one-time transfer increasing your mortgage debt at the point that interest rates increase. That being said, the difference is small and certainly rates will raise (although when is a crystal ball question), so it may be *easier* to transfer it now. GL.
You can break the term at any time so long as you wish to pay an interest penalty. What is important to know on a 10-year term is that after 5 years it is in the Interest Act that you will never pay more than a 3 month interest penalty and not the full IRD (Interest Rate Differential).
You should ask if your mortgage is portable - will the mortgage transfer with you if you wish to move? The average time for most people is about 3 years before they move (or renovate).
Variable interest rates have no where else to go but up, and every forecast is saying they will start increasing. It would be best to look at this pretty soon