# Refinance Mortgage Question



## mshakil (Mar 2, 2014)

Hi, Currently I have 5 years fixed mortgage. two years have been passed. Three years are left. I have 2.70% interest rate with the amount $546000.00. I bought the house in $555K with 5% down payment and with 25 year amortization. Now my price has been increased to $700,000. Now I want to refinance my mortgage with 30 year amortization with the same bank to complete the 5 year term with the same interest rate 2.7%. Now I want to know: Can bank refinance to 30 year amortization with the same rate for the remaining 3 years and bank can use the home equity for 20% down payment? Please explain and let me know how much I can see save monthly mortgage payment. Currently I am paying $2501 per month. How would be the monthly mortgage after 30 year amortization?

Thanks,
Adil


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## Just a Guy (Mar 27, 2012)

You realize that by increasing the amortization you wind up basically never paying off your house and only pay more interest to the bank? Your payments might be slightly less, but you will certainly be paying more money to the bank in the long term.

I don't understand your 20% downpayment, if you're trying to get rid of the cmhc it's too late, it was added to the original mortgage up front. 

Also, in order to increase the amortization period the bank basically needs you to requalify for the mortgage. You'll also have to most likely pay a different interest rate and a penalty for breaking the mortgage early.


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## heyjude (May 16, 2009)

In 2011, the maximum amortization period was reduced to 25 years, for conventional mortgages insured by CHMC. There's a reason for this. Canadians are taking on too much debt. You have a low interest rate now. What happens if you increase your leverage and a couple of years from now, interest rates rise?


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## AltaRed (Jun 8, 2009)

Just a Guy said:


> I don't understand your 20% downpayment, if you're trying to get rid of the cmhc it's too late, it was added to the original mortgage up front.
> 
> Also, in order to increase the amortization period the bank basically needs you to requalify for the mortgage. You'll also have to most likely pay a different interest rate and a penalty for breaking the mortgage early.


I agree with your last statement. Crazy talk by the OP. 

That said, am curious what would happen if the OP waits out the 5 year term. If the then renewal results in mortgage value that is well under 80% appraised value of the home at that time, would CMHC insurance then be dropped by the bank thereby increasing their margin?


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## Market Lost (Jul 27, 2016)

heyjude said:


> In 2011, the maximum amortization period was reduced to 25 years, for conventional mortgages insured by CHMC. There's a reason for this. Canadians are taking on too much debt. You have a low interest rate now. What happens if you increase your leverage and a couple of years from now, interest rates rise?


Sometimes, you can see a train wreck in progress.


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## Just a Guy (Mar 27, 2012)

Cmhc fees are built into the total mortgage. If he waited, cmhc may discharge their obligations and coverage (assuming he's got 20% equity and qualifies), however they won't refund the money and it will now be charged interest for 30 more years, not to mention the 5 years he's already paid down for a total of 35 years unless he decides to refinance once more...

When you refinance, the bank issues a brand new mortgage (with or without cmhc as required), which means full qualifying is required, unlike a simple renewal. However, the full amount originally borrowed still needs to be repaid, no refunds. 

Those cmhc fees are pure profit for the bank.


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## Market Lost (Jul 27, 2016)

Just a Guy said:


> Those cmhc fees are pure profit for the bank.


I thought those fees went straight to CMHC?

BTW, did you hear that they are looking at a deductible for banks that have a mortgage go into default? I'm not sure it will mean much as the bank has to do everything it can to mitigate a loss before CMHC will step in.


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## Just a Guy (Mar 27, 2012)

The fees go to cmhc, the loan and the interest have to be paid to the bank. The interest is where the money is made, especially after 35 years.


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

As I understand it, you wish to purchase a second property by leveraging your down payment from the refinance of your current property. If this is the case, then yes, it is possible. And yes, you can also opt for 30 years amort if you refinance conventional since max LTV on a refi is 80%. But as others have said, you will lose your insurance coverage. The issue with that is if you ever wish to purchase again at a high ratio (>80%), you would have to pay a full premium again whereas now, you could benefit from a reduction since you already paid it on +$500K. 
In terms of rate, your bank will be best to explain you the options, but in essence, you would be breaking your current mortgage therefore a penalty will apply - a hefty one too. You can 'save' the penalty by blending the rate. Either way you look at it, a penalty will apply.

Now if we take the common sense approach to your scenario, you're not borrowing too wisely. The idea is good if you had lots of equity and were very healthy with your savings and finances. The reason I am skeptical with your situation is that you bought with the minimal down and needed to pay close to $20k in default insurance. You are now willing to forego the $20k paid in order to borrow additional funds for the purchase of another home. Seems very reckless to me and I hope you know what you are getting yourself into. I also hope the high income you make can be sustained for a long period because it will take you a long time to deplete these heft mortgages. 

Feds just imposed further regulations to mortgages, just yesterday. Everyone needs to qualify on a BOC rate, currently 4.64%. This will have a huge impact to borrowers such as yourself. This will have the biggest impact ever imposed to date and will definitely cool off the housing market especially in TO and BC.

Think long and hard about what you are planning to do. I wish you all the best!


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## Market Lost (Jul 27, 2016)

Just a Guy said:


> The fees go to cmhc, the loan and the interest have to be paid to the bank. The interest is where the money is made, especially after 35 years.


I see what you meant, and yes the interest is definitely where the money is, especially when you can loan out multiples of your core capital.


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