# SHould we break our mortgage?



## Jungle (Feb 17, 2010)

ANyway, we got an offer from the bank. We currently have $98,000 mortgage in a 5.14% fixed rate term, expires late Sept 2012. So we have about 16 months left on the term. We can break our mortgage, get 20% off the penalty ($2354 with savings) and switch to a prime -0.85, 5 year variable term. This will save us $600 in one year today, according to them. One fault with this, is it assumes prime will not increase in one year. Nobody can perdict the future, but I believe we will see at least one or two prime rate increases, over the next year. So the savings would actually be lower than $600 if prime goes up one year from today. 

Right now, we double up our payment and sometimes prepay down the mortgage. One advantage is that with this rate, we can stop the double up and prepayments and use the cash flow for investing in the stock market. I believe the stock market will beat the mortgage rate of 2.15% over the long term..

On a side note, Scotia will allow us to do an early renewal next year 6 months before our fixed rate term expires. So we can early renew in March 2012. 

I know they are saying prime is going up in Sept now. What should we do??


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## I'm Howard (Oct 13, 2010)

I would stay with your current position, and next time use a Mortgage Broker.

Rates are heading up, but at what rate, not possible to predict.

You may consider getting a secured line of credit at prime + and reducing your mortgage with that, it will give you a blended rate.


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## Jungle (Feb 17, 2010)

Thanks Howard. It seems that in the first year, we would be trading $500-600 savings for a 5 year term... seems wayy to long of a term to lock into. A good rate can save you hundreds, but the wrong term can cost you thousands. 

Another note, the penalty could come down in a couple of months. If it came down $500 in three months, that would be a greater savings there, by just waiting to break at that time. The IRD is now being based of the posted, 1 year fixed term at Scota. So if that raises, we could see it come down, and as time passes, there are less months and balance for the IRD to multiply. 

The 5 year CDN bond index is yeilding lower, which has pushed rates down. Latetly I can see this trend continuing for a little bit, as the market is scared about the economic improvement lately. 

The banks have blamed the US for the lowering of mortgage rates three times in the last three weeks. ( ie job reports, earnings). 

Seems that stocks are getting cheaper.


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## Four Pillars (Apr 5, 2009)

I would just wait until the term expires and figure out what to do then. You can try the Scotia 6-month pre-mortgage and see what happens with it. 

Paying down the mortgage faster is the best strategy.

Howard's right - always use a mortgage broker.


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## GeniusBoy27 (Jun 11, 2010)

I agree too. With the penalty, I'd wait it out, and try to pay down faster as well.


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## GeniusBoy27 (Jun 11, 2010)

However, the penalty is quite large in comparison to the mortgage. I'd wait until the following year and negotiate then.


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## OhGreatGuru (May 24, 2009)

Jungle said:


> ANyway, we got an offer from the bank. ... We can break our mortgage, get 20% off the penalty ($2354 with savings) and switch to a prime -0.85, 5 year variable term. This will save us $600 in one year today, according to them. One fault with this, is it assumes prime will not increase in one year. Nobody can perdict the future, but I believe we will see at least one or two prime rate increases, over the next year. So the savings would actually be lower than $600 if prime goes up one year from today.
> 
> ...


Look at it this way. Why would they volunteer to give you a deal that saves you money and gives them less return? If it sounds too good to be true, it is.


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## Financial Cents (Jul 22, 2010)

You've got 9 months. Rates might, at best, go up 25 or 50 basis points. Maybe not at all. 

I'd wait it out and get a mortgage broker.


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