# Mortgage Renewal Advice



## Fisherman30 (Dec 5, 2018)

Hi Everyone,

My house mortgage is with TD, and I just got an email from them saying I can renew easily online, due to COVID. With the online renewal rates, they're offering me 2.58% 5-year fixed closed mortgage. 5-year closed variable is 2.29% (prime rate - 0.31%). It looks like I can get them to lock my interest rate at any time if I see prime rate starting to increase. Any tips on which I should go for? I emailed a mortgage specialist to see if there's anyway I can haggle a lower rate, but those rates already seem quite low to me. Any extra money I can save is always a bonus though.


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## Money172375 (Jun 29, 2018)

Shop around and talk to a broker if you’re willing to go through a whole application process.......income confirmation, credit check, appraisal etc.

if Not I’d call the branch where the mortgage is held and talk to an advisor or the branch manager. Ask for the floor rate. I think they’d be willing to go to the bottom in order to keep the business, since they’re probably seeing A decrease in new business.

from what I recall, variable rates are traditionally better. They also are subject to lower discharge fees if thats A possibility down the road. That being said....there is nor ”right or wrong” option. the fixed rate provides rate security and you typically pay a premium for that. Or you can roll the dice, and take a variable. Multiply your balance by the rate differential (0.29) and ask yourself if you’re willing to pay that premium for a rate guarantee.
much like investment decisions, mortgage decisions should be made on individual circumstances, risk tolerance and goals.


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## Fisherman30 (Dec 5, 2018)

Money172375 said:


> Shop around and talk to a broker if you’re willing to go through a whole application process.......income confirmation, credit check, appraisal etc.
> 
> if Not I’d call the branch where the mortgage is held and talk to an advisor or the branch manager. Ask for the floor rate. I think they’d be willing to go to the bottom in order to keep the business, since they’re probably seeing A decrease in new business.
> 
> ...


Thanks Money. I'm leaning towards the variable option. I have to talk to a mortgage specialist at the bank to confirm, but from what I'm reading on the TD website, if interest rates begin to go up, I can lock in my rate for the remainder of the term somehow. I need to get more details on that. As for going to a mortgage broker, that's typically what I would do, however, I'm temporarily laid off (with no guaranteed return to work date), and my Wife is on EI for maternity leave, so it's sort of unfortunate that our mortgage renewal date fell in the middle of all this. So I'm basically stuck with the bank I currently have the mortgage at.


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## Money172375 (Jun 29, 2018)

Fisherman30 said:


> Thanks Money. I'm leaning towards the variable option. I have to talk to a mortgage specialist at the bank to confirm, but from what I'm reading on the TD website, if interest rates begin to go up, I can lock in my rate for the remainder of the term somehow. I need to get more details on that. As for going to a mortgage broker, that's typically what I would do, however, I'm temporarily laid off (with no guaranteed return to work date), and my Wife is on EI for maternity leave, so it's sort of unfortunate that our mortgage renewal date fell in the middle of all this. So I'm basically stuck with the bank I currently have the mortgage at.


My friend just called me about this. He has a variable mortgage at 1.9%. Lucky him. He thought he could lock it at that rate. That’s not how it works.

with a variable mortgage, yes you can lock into a fixed rate....but it will be the fixed rate that Is in the market at the time you decide to switch. So if you take a 5 year variable now, and in 2022, you want to convert to a fixed rate, you will get the fixed rates that are available in 2022. And for most variable mortgages, if you do decide to convert, you need to choose a term that is equal to or more then the remaining term. So in the example above....in 2022, you would need to take out at least a 3 year term.


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## Fisherman30 (Dec 5, 2018)

Money172375 said:


> My friend just called me about this. He has a variable mortgage at 1.9%. Lucky him. He thought he could lock it at that rate. That’s not how it works.
> 
> with a variable mortgage, yes you can lock into a fixed rate....but it will be the fixed rate that Is in the market at the time you decide to switch. So if you take a 5 year variable now, and in 2022, you want to convert to a fixed rate, you will get the fixed rates that are available in 2022. And for most variable mortgages, if you do decide to convert, you need to choose a term that is equal to or more then the remaining term. So in the example above....in 2022, you would need to take out at least a 3 year term.



Ah okay, that's sort of what I suspected. Even still, I personally don't see mortgage rates going up too dramatically in the next 5 years. Looking at the past 7 years, mortgage rates have been hovering around the 2.5-3.0% mark. Even lower now. I could be wrong though. Since I am still only 5 years into my mortgage (this is my first renewal), the monthly interest/principle ratio is pretty high, so any reduction of interest I can get now (even for a year or 2) will pay off later. I'm also going to get them to stop paying monthly installments into the "property tax account" and paying the property tax on my behalf each year. This just seems to be me giving the bank an interest free loan every year. Right now, they're taking $238/month and putting it into my property tax account. If I can save that $238/month, plus about $30/month in interest, and do something more useful with it until property tax time, I'll be better off.


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

I have advised for many years on this forum and have always maintained the same recommendation - stick to variable.

Regardless if rates go up or down, you cannot time and beat the market. With the variable rate, you ensure you book the lowest rate available right now. If rates move up, you go up. If they go down, you benefit as well. With a fixed mortgage, you theoretically only benefit if rates go up but cannot take advantage if rates drop.

Another reason to stick with variable, especially if your with a traditional bank, is penalties. Should you break your mortgage within your term (odds are against you), a variable rate penalty is only 3 months interest. On a fixed rate, banks generally charge an IRD which is extremely high.

You cannot look at picking a rate based on what you believe the future rates will be. You need to base it on current rates over the course of the chosen term. Choosing a fixed rate will always mean you are paying a premium to secure a rate you believe will rise in the future. You need to remember that your term expires quickly and you will be faced with the same decision upon renewal. Similar to buying stocks, you can either buy in a lump sum and live with the purchase price or make multiple purchases to normalize your average cost. A mortgage gets renewed several times so selecting a fixed rate is equivalent to overpaying for a stock each time you renew. Selecting a variable rate ensures a lower cost each time you renew.


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## Fisherman30 (Dec 5, 2018)

Thanks Mortgage - It looks like I'm going variable, and the mortgage specialist offered me 2.19% (prime - 0.41) on 5 years variable closed, but it sounds like I'll actually be able to get 2.14%, so I'm satisfied with that.


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## Money172375 (Jun 29, 2018)

Fish, Mortgage - Would this change your mind?









Five-year fixed mortgage rate in Canada falls to 1.99% for first time


RateSpy.com says HSBC is the first bank to crack the 2% barrier on a five-year fixed rate, though the rate is for default-insured mortgages only




business.financialpost.com





I’m starting To feel like my parents....my First mortgage was 4.95%. (That was with a 1.5% staff discount........back then, ”posted” rates were the rate. Now it’s all “special offers” with massive discounts.

nothing like the 13% they paid though!


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

No it doesn’t change my mind. 
That rate is offered to insured mortgages only. You easily get similar on an insured variable.
You need to compare apples to apples.
Refinance and renewal rates will always be higher.


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## Fisherman30 (Dec 5, 2018)

Thanks everyone - I got 2.10% 5 year variable closed (prime - 0.5%)...I'm satisfied with that.


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

n/a


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## MrMatt (Dec 21, 2011)

I just got offered
Prime 0.31 = 2.14%
5y 2.34%

But I think I want to know the break penalties, it's clear that they don't think rates are going up any time soon.


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

MrMatt said:


> I just got offered
> Prime 0.31 = 2.14%
> 5y 2.34%
> 
> But I think I want to know the break penalties, it's clear that they don't think rates are going up any time soon.


Please specify what your transaction was when quoting rates; refinance, purchase, insured, etc. Gone are the days where there is one rate applicable to all type of mortgages.

Currently, you can easily get under 2% for an insured purchase......a conventional purchase, renewal or refinance will hover just over 2% when talking about 5 year terms.

As for penalties, variable rates almost unanimously carry a 3 month penalty, unless you signed for a special product. Fixed rates will be either IRD or 3 month interest. In a falling rate market, IRDs tend to be the norm. Traditional banks have a funny way of calculating their IRD so their penalties on fixed rates are always high. Virtual lenders have lower posted rates so their IRD calculations are more normalized. And again, variable rate penalties are the same across the board. Bottom line, know what you are signing for and don't get enticed by special rate products.


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## birdman (Feb 12, 2013)

In regards to Mortgage U/W's post I believe he meant "THE GREATER OF" the IRD or 3 mos interest.


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

frase said:


> In regards to Mortgage U/W's post I believe he meant "THE GREATER OF" the IRD or 3 mos interest.


Correct. I will add that some lenders have restrictive products where the penalty is pre-established should the consumer break their mortgage. This is usually the highest when compared to IRD or 3 month penalty. And lastly, the famous cashback products.......the majority of these promos will require the consumer to pay back the cashback portion on top of the regular penalty should they break their mortgage. 

So like I have repeated numerous times on several posts in this forum, do not chase the lowest rate - seek the best product for your needs and understand the conditions or clauses of your loan. 

If we compare this to car financing, we all understand how they are able to offer 0% financing......there's always a 'catch'.


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## Money172375 (Jun 29, 2018)

Mortgage u/w said:


> Correct. I will add that some lenders have restrictive products where the penalty is pre-established should the consumer break their mortgage. This is usually the highest when compared to IRD or 3 month penalty. And lastly, the famous cashback products.......the majority of these promos will require the consumer to pay back the cashback portion on top of the regular penalty should they break their mortgage.
> 
> So like I have repeated numerous times on several posts in this forum, do not chase the lowest rate - seek the best product for your needs and understand the conditions or clauses of your loan.
> 
> If we compare this to car financing, we all understand how they are able to offer 0% financing......there's always a 'catch'.


good advice. You know as well as I do, consumers will chase the rate and freak out when they want to break the term.......


https://www.cbc.ca/news/business/mortgage-penalty-pandemic-1.5588741


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## MrMatt (Dec 21, 2011)

Mortgage u/w said:


> Please specify what your transaction was when quoting rates; refinance, purchase, insured, etc. Gone are the days where there is one rate applicable to all type of mortgages.
> 
> Currently, you can easily get under 2% for an insured purchase......a conventional purchase, renewal or refinance will hover just over 2% when talking about 5 year terms.
> 
> As for penalties, variable rates almost unanimously carry a 3 month penalty, unless you signed for a special product. Fixed rates will be either IRD or 3 month interest. In a falling rate market, IRDs tend to be the norm. Traditional banks have a funny way of calculating their IRD so their penalties on fixed rates are always high. Virtual lenders have lower posted rates so their IRD calculations are more normalized. And again, variable rate penalties are the same across the board. Bottom line, know what you are signing for and don't get enticed by special rate products.


Refinance at Scotiabank.
So I might just stick with it, seems ok.
Quite honestly my mortgage is finally getting small.


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

MrMatt said:


> Refinance at Scotiabank.
> So I might just stick with it, seems ok.
> Quite honestly my mortgage is finally getting small.


Both rates are good and in the norm for a standard refinance.
If you ask my opinion, I would choose the variable rate. Penalty is 3 month interest - assuming this is not being offered as a restrictive product, which it doesn't seem to be.

The fixed rate may look attractive.....but if BoC drops the prime rate, you wouldn't benefit from this. I don't have a crystal ball but the way I see it, rates aren't going up for a long time.


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