# Mortgage Renewal Options - Pay it off Completely with an Inheritence??



## JohnZ7 (Apr 1, 2018)

Hi,

I'm looking for some advice from some mortgage experts as my mortgage is up for renewal in September. I want to pay the $90K balance off but not sure if I should. Unfortunately, my original mortgage contract is in my safety deposit box so I cannot currently access it to determine the best option. However, I have enough details that hopefully will be sufficient for any expert to provide advice.

1. Original amortization - 25 years with around 15 years left
2. I last renewed for a 2 year term with an interest rate of 2.8%
3. The renewal permitted prepayments of 20% of the original principal per annum, with the prepayment penalty being the greater of 3 months interest or interest rate differential based on the outstanding balance less 20% of the original loan amount.

I know that many people will recommend renewing and investing the $90K but I already have enough of my assets invested in equities. This 90K would be from an inheritance so rather than just adding it to my fixed income allocation, yielding about 2.5%/year, I'd just like to pay off the mortgage. I'd also like to semi-retire in a couple of years so would like to do so debt-free.

If I could do so without paying a penalty, I would just pay the 90K off upon maturity. However, if I can't pay it off without penalty, I'm thinking of switching to an open mortgage, being subject to a higher interest rate, but then quickly paying off the remainder of the mortgage without penalty. Nonetheless, I'm not sure if the latter option is even realistic. I did some research on the internet and could not figure out if it's easy to switch from a closed to open mortgage upon term renewal. And if it is possible, I'm not sure if you would have to wait a minimum amount of time before paying off the mortgage or could pay it off at any time.

Hopefully, this is enough information to get some prudent advice. 

Thank you,
John


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## Mukhang pera (Feb 26, 2016)

You do not say when the 2-year renewal took place, but when that 2-year term ends, the principal sum is due, unless renewed. You may pay the full amount at that time, sans penalty. The amortization period plays no role in determining when the note may be paid out.


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## JohnZ7 (Apr 1, 2018)

Mukhang pera said:


> You do not say when the 2-year renewal took place, but when that 2-year term ends, the principal sum is due, unless renewed. You may pay the full amount at that time, sans penalty. The amortization period plays no role in determining then the note may be paid out.


Thanks for your response. I last renewed in September 2016 and the term ends in September 2018. Based on my research, I have a feeling that you are correct but am not sure. That's why I posed the question!  

John


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## Mukhang pera (Feb 26, 2016)

JohnZ7 said:


> Based on my research, I have a feeling that you are correct but am not sure. That's why I posed the question!
> 
> John


Based on my years in law practice, which included some real estate and acting for mortgage lenders, I share the view that I am correct. After all, have I steered you wrong before? :cocksure:


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## AltaRed (Jun 8, 2009)

I agree the full amount becomes due in Sept 2018, and payable... unless renewed. Write a cheque for the balance. I've paid off mortgages before exactly this way. 

There are no costs involved other than the usual discharge of the mortgage. This is an absolute no-brainer.


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## JohnZ7 (Apr 1, 2018)

Mukhang pera said:


> Based on my years in law practice, which included some real estate and acting for mortgage lenders, I share the view that I am correct. After all, have I steered you wrong before? :cocksure:


Lol! No, you have not! Appreciate your responses, Mukhang pera!


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## JohnZ7 (Apr 1, 2018)

AltaRed said:


> I agree the full amount becomes due in Sept 2018, and payable... unless renewed. Write a cheque for the balance. I've paid off mortgages before exactly this way.
> 
> There are no costs involved other than the usual discharge of the mortgage. This is an absolute no-brainer.


Thanks, AltaRed! I now feel like an idiot for asking the question! I had a feeling that what you said was the case but couldn't find anything definitive. My excuse is that I've never paid off a mortgage before I wasn't aware of the options.  I now know for future reference!


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## Mukhang pera (Feb 26, 2016)

And let's give thanks too to AltaRed, despite his lapse into obscure legal jargon, such as "no-brainer". I think we get the idea.


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## Danny (Oct 17, 2012)

Definitely agree. Paying off your mortgage is the smart thing to do. Never can go wrong with no debt. Your best wealth building tool is your income and without a mortgage its like you just got a big raise. Think off all the money you will have to invest now and enjoy with.


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## JohnZ7 (Apr 1, 2018)

Danny said:


> Definitely agree. Paying off your mortgage is the smart thing to do. Never can go wrong with no debt. Your best wealth building tool is your income and without a mortgage its like you just got a big raise. Think off all the money you will have to invest now and enjoy with.


Correct, Danny. As a very debt-averse person, who never carries a balance on his credit cards, the thought of not having to pay thousands of dollars in mortgage payments a year sounds great to me! 

John


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

I also agree with the others - pay off the mortgage at renewal. And as mentioned already, there is no penalty to pay it off since you are at renewal. In fact, when you are within a month from renewal so you can safely pay it off early - the penalty is your per-diem interest which is due regardless.


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## Karen (Jul 24, 2010)

JohnZ7 said:


> Correct, Danny. As a very debt-averse person, who never carries a balance on his credit cards, the thought of not having to pay thousands of dollars in mortgage payments a year sounds great to me!
> 
> John


You will never regret paying off your mortgage, John. The day that I made the final payment on mine was definitely one of the happiest days of my life. I'm now 75, have been retired for 12 years, and haven't a financial care in the world!


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## OptsyEagle (Nov 29, 2009)

Probably not an issue and perhaps this point is pertaining to Ontario law but an inheritance can be protected against marital divorce. Once the money is used to pay the mortgage on the matrimonial home, it is shared property. 

One work around is to sell or use $90K of shared money to pay off the mortgage and then set up a separate account for the inheritance and invest it into whatever was discarded to allow for the mortgage pay off.

Just something to think about.


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## Retiredguy (Jul 24, 2013)

OptsyEagle said:


> Probably not an issue and perhaps this point is pertaining to Ontario law but an inheritance can be protected against marital divorce. Once the money is used to pay the mortgage on the matrimonial home, it is shared property.
> 
> One work around is to sell or use $90K of shared money to pay off the mortgage and then set up a separate account for the inheritance and invest it into whatever was discarded to allow for the mortgage pay off.
> 
> Just something to think about.





My understanding is the same for BC - What you now take into a marriage, along with gifts and inheritances received during the marriage, stay with the individual. Of course paper trail is important. The lawyer I was listening to on the radio also said if the person receiving the inheritance paid off a family mortgage that too could be protected but again paper trail is important.


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## AltaRed (Jun 8, 2009)

Retiredguy said:


> My understanding is the same for BC - What you now take into a marriage, along with gifts and inheritances received during the marriage, stay with the individual. Of course paper trail is important. The lawyer I was listening to on the radio also said if the person receiving the inheritance paid off a family mortgage that too could be protected but again paper trail is important.


That latter point can be debated. I had a similar discussion with my lawyer during preparation of my co-hab agreement (BC). His advice was NOT to commingle funds at all since it takes professionals time and money to work through the forensic paperwork in event of a dispute in a relationship breakdown. It simply leaves too many doors open. We didn't have the mortgage situation to deal with, but I did open a specific brokerage account to handle family inheritances and gifts, etc. IF in doubt, don't commingle.


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## new dog (Jun 21, 2016)

Karen said:


> You will never regret paying off your mortgage, John. The day that I made the final payment on mine was definitely one of the happiest days of my life. I'm now 75, have been retired for 12 years, and haven't a financial care in the world!


That is good to hear karen and good advice. I hope you are also in good health, as well as good financial health.


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## JohnZ7 (Apr 1, 2018)

As the person who originated this thread, I just wanted to say that I paid off the mortgage in full last week. It's going to be nice not having to pay hundreds of dollars a month in mortgage expenses. Thank you to all who responded to my original post. Now my plan is to transition from a stressful well-paid full-time job to a more relaxing lower-paid part-time job.


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## OnlyMyOpinion (Sep 1, 2013)

^+1 Good to here John. 
Next... fill up that TFSA if you can, and haven't already. :nevreness:


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## JohnZ7 (Apr 1, 2018)

OnlyMyOpinion said:


> ^+1 Good to here John.
> Next... fill up that TFSA if you can, and haven't already. :nevreness:


I actually have, OnlyMyOpinion. I sooooo loathe Trudeau for having lowered the TFSA limits. Infuriating!!!! Trudeau just wants everyone to be dependent on his government so you'll keep voting for them. I want to be able to save as much as possible in my TFSA to lessen my dependence on the government but the Trudeau Libs makes it difficult.


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