# Mortgage renewal rates



## eethanshire (Mar 26, 2013)

My wife and I are in the middle of renewing our mortgage with BMO.
They have offered us with 2.99% for 5 years 20%+20% not 10%+10% (an incentive to stay with them) or 3.69% for 10 years.

I have no plans to sell in 10 years, but the 10 year interest rate is quite enticing. What to choose, your thoughts?


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## Just a Guy (Mar 27, 2012)

I'd be tempted to have a secure rate for 10 years. I fully expect interest rates have to rise in the next 5 years, probably more than 1%...but I'd probably pay the premium to have 10 years of secure rates.


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## none (Jan 15, 2013)

One way that I've liked to compare mortgage rates (because things can get lost in the amortization periods/difference in rates) is simply to take the smaller rate but pay it off at the higher rate price.

For example (and this math is just rough), on 500K with 2.99% rate you will pay about $14,950 in interest alone. For the 3.69 you would pay $18,450 a difference of $3,500 so after 5 years you would more less have paid off an additional $17,500 on the principle.

Now you need to ask yourself, how much interest rates would need to rise in order to offset that $17,500 additional principle you have payed down (Keep in mind that more of the principle will be paid down at this point as well). The back of the envelope is that the 5 year fixed interest rate would need to be around 4.5% to just break even (actually it would probably be a little more). So yes, if you think interest rates will go up more than 50% in five years than the 10 year would be a better deal.

I personally would go with the 5 year fixed but pay off at the 10 year fixed rate but I'd have to do the math a little better.


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## crazyjackcsa (Aug 8, 2010)

It also depends on how quickly you plan on paying the mortgage off. Could you get it done in ten years? Five? How sensitive are you to mortgage rates? Personally I like the 5-year option. But that's only because I plan on having the house paid off in 6.5 years.


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## rikk (May 28, 2012)

eethanshire said:


> My wife and I are in the middle of renewing our mortgage with BMO.
> They have offered us with 2.99% for 5 years 20%+20% not 10%+10% (an incentive to stay with them) or 3.69% for 10 years.
> 
> I have no plans to sell in 10 years, but the 10 year interest rate is quite enticing. What to choose, your thoughts?


The BMO site says ... "For the 10 year low-rate mortgage, the mortgage can be paid off without restriction in the last 5 years of the term. Prepayment charges will apply" ... you might enquire what the penalty is ... http://www.bmo.com/home


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## Homerhomer (Oct 18, 2010)

Since we have no idea what will happen in the next 5 or 10 (both rates wise and in your personal life) years IMO it would be silly to pay such a huge premium and be locked in for 10 years.
Over the years the once who renew for 1 year every year have most likely saved thousands of dollars in comparison to the once who locked in for 5 or 10 years, on top of the interest add also penalties for breaking the mortgages and the savings are even higher.


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## Xoron (Jun 22, 2010)

Homerhomer said:


> Over the years the once who renew for 1 year every year have most likely saved thousands of dollars in comparison to the once who locked in for 5 or 10 years, on top of the interest add also penalties for breaking the mortgages and the savings are even higher.


:encouragement:

That is my strategy. 1 year fixed, every year. Happy with the rate, happy with the term, happy (sort of) with the mortgage penalties for breaking early.


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## eethanshire (Mar 26, 2013)

Despite all the good advise you all have to share I did not renew my contract with BMO as I was under the impression they would be waivering the penalty fees for early renewal considering what I had planned come the maturity date.


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## fergusonsd (Dec 30, 2012)

When comparing 3.69% over 10 with 2.99% over 5 that seems like an obvious choice. You should go with the 10 year term as interest rates will go up. Recently the 10 year rate has tumbled and now is a great time to jump on it.

Devon - www.fergusonfinancial.ca


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## Addy (Mar 12, 2010)

Aren't these rates on the high side? Maybe rates have gone up recently?


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## carverman (Nov 8, 2010)

none said:


> For example (and this math is just rough), on 500K with 2.99% rate you will pay about $14,950 in interest alone. For the 3.69 you would pay $18,450 a difference of $3,500 so after 5 years *you would more less have paid off an additional $17,500 on the principle.*


Uh..how does your calculation work in real life? Interest is interest and principle is principle. The higher interest (3.69) is calculated on the amount borrowed right from the time
you enter into the mortgage contract. It's a blended monthly payment so yes, you will pay off a certain amount of the principle in 10 years..but you will also be paying the 
mortgage company more in interest for the 10 years of the contract until the next renewal.

A lot of things can happen to the economy/BOC rates in 10 years, the rates could go up, but it also depends on the economy which isn't doing too well these days. 

If you lock in for 5 years at 2.99%... and lets say interest rates rise to 3.69% by the time you renew..you would have paid an additional 1.70% on the amount of the remaining principle for 5 year term. How is this saving you any money? All you are doing is putting more into the pockets of the mortgage company.

If you are really worried about the interest rates going up in the next 10 years...take the difference between what you would be paying the mortgage company
over a ten year term; lock into a 5 year term, (which may be the lowest right now), and put the difference in interest that you would be paying between a 5 year and 10 year
term into a TFSA. 
On a 100K mortgage, that difference could be significant..and if you save that... rather than give it to the fat bankers over a 10 year term.
In 5 years, you will have built up a little fund up to $5500 a year), over 5 years to accomodate any significant rise in interest rates in 5 years.


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