# Need advice on mortgage renewal



## jazzman (Dec 15, 2014)

Hi, I am looking for your advice on mortgage renewal as my bank is suggesting I should proceed.

I am with one of the 5 big banks and he is my current mortgage status:

Mortgage remaining: $212,000
Mortgage term: 5-year fixed
Current interest rate: 2.79%
Current semi-monthly payment: $980
Current extra payment: I am making $800-$1000 extra payments towards my mortgage with my goal to pay it off in exactly 5 years from now.

The same bank called me and offered me 1.70% 5-year fixed.

Mortgage penalty for breaking the current contract: $5,300, confirmed by the bank.
Any other fees: none (according to the bank, this is a renewal not a re-finance)

When I plug in the numbers into calculator online, even with the penalty, I save about $2,500 total.

Am I missing something? Should I proceed or stay put. I feel like I should proceed. I did notice that if I continue to make extra payment as I am doing now, the savings from moving to lower interest rate decreases. 

Thought?


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## fplan (Feb 20, 2014)

I think CIBC is offering [email protected] fixed and also offering 2k cash back. Usually same lender will not give you the best deal.. First get the deal from another bank ,lock the rate and switch.


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## jazzman (Dec 15, 2014)

Wow, 1.49 5 year fixed is an amazing rate. You are correct, I should not rush it.


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## Retiredguy (Jul 24, 2013)

jazzman said:


> Hi, I am looking for your advice on mortgage renewal as my bank is suggesting I should proceed.
> 
> I am with one of the 5 big banks and he is my current mortgage status:
> 
> ...


You're nearing the end of your 5 yr fixed term and wanting to renew, correct? If it's a renewal why the penalty?
I don't think you need to concern yourself with keeping your bank anonymous. Which bank?


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## jazzman (Dec 15, 2014)

Its BMO.
I am 2 years into a 5 year fixed contract. I called the bank for something completely different and the agent aaid i am paying a lot higher interest and they can offer a conpetitive rate. Thats how it got started. The penalty is lower than i expected.


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## jazzman (Dec 15, 2014)

Another strange thing is that when i plug all the numbers into BMo mortgage prepayment calculator, it tells me my penalty will be 12k but BMO on the phone says $5,300. What do i believe ha


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## birdman (Feb 12, 2013)

I expect the bank is correct and just ask them to confirm the penalty and maybe even ask them how it was calculated. The mortgages often refer to "the greater of" ??? mos interest penalty and other is the interest rate differential. You could also check the terms yourself in your current mortgage. You would have to calculate the savings on the CIBC rate carefully as the savings would only apply to the reducing amount of your mortgage which would be quite minimal in the latter years. You may also need to get a new appraisal and I expect there would be legal and discharge fees. Can't believe the CIBC or even your rate-wow!!


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## Money172375 (Jun 29, 2018)

From what I recall there can be a difference in penalty with an early renewal vs a discharge.
i would ask your current bank what the penalty is to discharge. That will clarify the penalty to switch and also give your existing lender the idea that you’re ready to move if they don’t match The CIBC offer. Both offers look to save you money. Do you have the $5300 handy if you decide to stay put?


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## Tostig (Nov 18, 2020)

Ask what the rates for the 4yr, 3yr, 2yr, 1yr and open variable rate are.

If BMO is approaching you to make this offer, tell him to waive all penalties.

I have never held mortgages longer than 3 years. The shorter the term, the more flexibility just like the one offered to you.

Generally longer term mortgages have higher rates for the benefit of the financial institution, not the customer.

Just think. If you compare two people, one with a 5 yr mortgage and the other with a 1 yr mortgage at a low rate, if the interest rates keep going up, by the tine the 1 yr rate catches up to the 5 yr rate, the renewal fir the 5 yr rate would jump up proportionally anyways.

If the 1 yr rate surpasses the 5 yr rate, all the money saved by the 1 yr rate would cancel out the extra money over the 5 yr rate.


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## Mortgage u/w (Feb 6, 2014)

To see if it’s worth it, you need to calculate the interest you will be saving for the next 3 years and not 5 years. Subtract the penalty and if your still positive, it may be worth it. 
something tells me the penalty they quoted you is off. Given the extra low rates, the IRD is large so the online penalty of 12k seems more likely. In any case, I would suspect you won’t even save $5300 in the next 3 years.
Given you are making additional payments, I would structure the payments so that you can still get it paid off in a suitable timeframe


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## Retiredguy (Jul 24, 2013)

Mortgage u/w said:


> To see if it’s worth it, you need to calculate the interest you will be saving for the next 3 years and not 5 years. Subtract the penalty and if your still positive, it may be worth it.
> something tells me the penalty they quoted you is off. Given the extra low rates, the IRD is large so the online penalty of 12k seems more likely. In any case, I would suspect you won’t even save $5300 in the next 3 years.
> Given you are making additional payments, I would structure the payments so that you can still get it paid off in a suitable timeframe


Question. The op indicates they intend to pay off the mortgage completely over the next 5 years. Do you think a blend and extend back out 5 yrs with the lower rate might be advisable? If 3 yrs from now they want another 2 yrs locked in, 2 year rates are usually not optimal like the special 5 yr rates.


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## Mortgage u/w (Feb 6, 2014)

Retiredguy said:


> Question. The op indicates they intend to pay off the mortgage completely over the next 5 years. Do you think a blend and extend back out 5 yrs with the lower rate might be advisable? If 3 yrs from now they want another 2 yrs locked in, 2 year rates are usually not optimal like the special 5 yr rates.


Absolutely. A blended rate would be ideal here. You can blend to the remaining term. Or blend with a new term. Personally, I would blend with a remaining term. At renewal, it doesn’t matter the term since making extra payments will still allow you to payoff the mortgage before term without penalty.


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## Retiredguy (Jul 24, 2013)

Mortgage u/w said:


> Absolutely. A blended rate would be ideal here. You can blend to the remaining term. Or blend with a new term. Personally, I would blend with a remaining term. At renewal, it doesn’t matter the term since making extra payments will still allow you to payoff the mortgage before term without penalty.


I understand blend and extend. How does blend to remaining term work?


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## Mortgage u/w (Feb 6, 2014)

Retiredguy said:


> I understand blend and extend. How does blend to remaining term work?


Same thing except you continue your existing term with a blended rate. The rate is a blend of actual rate vs the current rate for a similar remaining term which is sufficient to absorb the penalty.


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## Retiredguy (Jul 24, 2013)

jazzman said:


> Hi, I am looking for your advice on mortgage renewal as my bank is suggesting I should proceed.
> 
> I am with one of the 5 big banks and he is my current mortgage status:
> 
> ...


Blend and extend or blend to existing term would likely prevent you having to fork out big penalty fees but still provide _some_ reduction in your interest rate.









How a Blended Mortgage Can Save You Money | Blend & Extend, Blend to Term - Loans Canada


Are you currently considering refinancing your mortgage? Read this first and learn how a blended mortgage could save you a lot of money.




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What are Blended Mortgages | Blend & Extend, Blend to Term | Ratehub.ca







www.ratehub.ca


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## Bananatron (Jan 18, 2021)

fplan said:


> I think CIBC is offering [email protected] fixed and also offering 2k cash back. Usually same lender will not give you the best deal.. First get the deal from another bank ,lock the rate and switch.


I think that sounds too good to be true. An almost unheard of rate from a big bank, plus cash back?


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## Mortgage u/w (Feb 6, 2014)

Bananatron said:


> I think that sounds too good to be true. An almost unheard of rate from a big bank, plus cash back?


that sounds about right. 1.49% is very common especially for insured loans and not impossible for conventional loans either. Banks are very aggressive these days given the huge demand for mortgages and attractive spreads on interest rates. Cash back is just their cost to acquire business. A mortgage broker will get paid 1% of the loan amount so $2000 cash back in branch is a lot less than what they would pay a broker. Some lenders are offering the commission AND the cash back. 
crazy times indeed!!


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## Bananatron (Jan 18, 2021)

Mortgage u/w said:


> that sounds about right. 1.49% is very common especially for insured loans and not impossible for conventional loans either. Banks are very aggressive these days given the huge demand for mortgages and attractive spreads on interest rates. Cash back is just their cost to acquire business. A mortgage broker will get paid 1% of the loan amount so $2000 cash back in branch is a lot less than what they would pay a broker. Some lenders are offering the commission AND the cash back.
> crazy times indeed!!


wow. I wonder how much mortgage size has to do with this? I was calling TD to renew my parents mortgage and they were like "yep, we can give you 1.89% just like the website says".


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## Mortgage u/w (Feb 6, 2014)

Bananatron said:


> wow. I wonder how much mortgage size has to do with this? I was calling TD to renew my parents mortgage and they were like "yep, we can give you 1.89% just like the website says".


Some may have loan size restrictions. But in general, lenders will offer better rates to new customers instead of existing clients. Do your homework for your parents mortgage and negotiate, albeit, 1.89% is still a good rate for a renewal. I am sure they can do better though.


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## Bananatron (Jan 18, 2021)

Mortgage u/w said:


> Some may have loan size restrictions. But in general, lenders will offer better rates to new customers instead of existing clients. Do your homework for your parents mortgage and negotiate, albeit, 1.89% is still a good rate for a renewal. I am sure they can do better though.


I so done with this renewal bs. I moved my rental mortgage over to tangerine who always have great posted rates. 1.74 for 5 year and 1.59 for 3 year, or p-1.00% (1.45%) for variable. All with 25% annual prepayment privileges.

Best thing is - no negotiating or calls.


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## Mortgage u/w (Feb 6, 2014)

Bananatron said:


> I so done with this renewal bs. I moved my rental mortgage over to tangerine who always have great posted rates. 1.74 for 5 year and 1.59 for 3 year, or p-1.00% (1.45%) for variable. All with 25% annual prepayment privileges.
> 
> Best thing is - no negotiating or calls.


Consider a Mortgage Broker. They will do the negotiating for you


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## Bananatron (Jan 18, 2021)

Mortgage u/w said:


> Consider a Mortgage Broker. They will do the negotiating for you


With that comes requalifying and the headache of providing all the documents, appraisals, etc. Renewing is just a phone call.

Plus my broker couldn't even beat tangerines posted rates.

Anytime I can cut out a parasitic middle man, I do. No offense intended to the mortgage brokers out there.


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## balexis (Apr 4, 2009)

Bananatron said:


> With that comes requalifying and the headache of providing all the documents, appraisals, etc. Renewing is just a phone call.


Totally true. And it is exactly why many banks don't straight up offer their best rates for renewals. Many people are OK going the easy path of accepting the bank's offer with no effort on their side. Nothing wrong with that, but we can't blame the bank.

I am in the process of renewing my own mortgage right now, and 1.74% fixed 5 yrs is not the best deal there is. I'm looking at 1.49%/1.59% at MCAP right now (uninsured, 5yr fixed, 1.49% is the veeeery restrictive value-flex product, 1.59% for the regular product). Through a broker. Of course YMMV.


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