# Mortgage decision



## sajid44 (Feb 10, 2012)

Hey guys, I need your help in deciding what should I do

Current Mortgage:

5 years fixed with RBC expiring in Dec 2012
rate 5.19%
o/s amount $331,000
40 years amortization
Monthly payment $1745

Mortgage offered from another bank:

2.79% 5 years closed fixed 
30 years amortization
Pre approval is valid until March 2, 2012
Penalty for breaking Mortgage is approx $6000.

Should I break my Mortgage, pay penalty and go with the 2.79% rate? or leave it as is and wait until Dec 2012 and see what rate I get at that time? Thanks


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## londoncalling (Sep 17, 2011)

40 year amortization? That is way too long. I guess this news is a little too late and besides the point. I would break the mortgage just to reduce my amortization by 10 years... 

I can't see any huge spikes in rates between now and year end. However, you would have to calculate the amount you would save in interest between now and Dec by breaking the mortgage. If it is greater than $6000 then the answer is simple. I can't see rates dropping between now and then so there should be need to consider waiting till December for a lower rate. I am sure that is not your thinking either. IMO, I don't see a change in rates other than maybe .25% between now and then.

Other things to consider are your current mortgage terms. Are there any differences between the current mortgage and the new one? Can you make extra or greater payments between now and year end? The $6k spent to break the mortgage may possibly be better used to pay down your mortgage now. Again this would require an interest calculation. Regardless of what you decide, in the future, avoid 40 year mortgages like the plague. Have you calculated how much you are paying with a 40 yr amortization at 5.19%? If you aren't careful you may end up paying for your home twice.


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## Four Pillars (Apr 5, 2009)

You didn't even mention the penalty amount.

I would just wait.


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## marina628 (Dec 14, 2010)

Do you have the cash to pay the penalty or going to roll it into the new mortgage?I would leave it alone and most banks will renew 90 days prior anyway.


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## GreenAvenue (Dec 28, 2011)

Is the mortgage amount going to be $331,000 plus $6,000? If the am. period is shorter and it comes out to be less per month I would do that for sure!


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## stephenheath (Apr 3, 2009)

Ok, my understanding is all those 2.79 and 2.99 teaser rates are already long gone, so you won't get rates that low if you wait. Running the numbers with what you have as a mortgage right now, then assuming you get 4.0% for the remaining lifetime of your mortgage but that you keep the payments the same you get:

Payments: 1745.00
Paid Off In: 305 months
Total Interest Paid: 199045.33

Now, assuming you switch immediately to the new one and add the penalty to the outstanding balance, and have the 5 year rate, and then subsequent to that are at 4.0% for the remaining lifetime so we compare apples to apples we get:

Payments: 1380.05 BUT since you can pay 1745, leave it at 1745, so...

Payments: 1745.00
Paid Off In: 283 months
Total Interest Paid: 156652.03

So I would without a doubt pull the trigger and switch provided you can roll the penalty into the new mortgage or otherwise cover it and keep the payments the same. Take it as an opportunity to get ahead, not to cut back on the mortgage and boost the lifestyle because there is no guarantee that rates will be 4% in 5-6 years when you renew again. That's another reason to keep the payments at 1745... if interest rates go up, you can leave the payments alone then too and you're still more than covering the principal, unless rates go crazy.


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## sajid44 (Feb 10, 2012)

First of all, thank you guys for your input

My current o/s is $341,000 (sorry $331,000 was a typo)

I ran three different scenarios:

1: Current Mortgage which is expiring in Dec 2012
http://pastebin.com/M4MnwEFK

2: Mortgage offered by the new bank at 2.79%
http://pastebin.com/fw3RvYKk
Total Mortgage amount includes $6000 penalty 

3: Renewing Mortgage with RBC in Dec 2012, no penalty and lets assume I get
3.5%, 5 years fixed (which looks more realistic to me but off course no one
can predict)
http://pastebin.com/r8JRVRGg

Here is the comparison of all three
http://pastebin.com/tBpkNJeC

Just by looking at the comparison between 2 & 3, if I break the current mortgage and go with 2.79% rate, I will pay $10,512 (55,990-45,478) less interest to the bank, $4747(39,782-35,035) more will be paid towards the principal amount and $96 less monthly payment but the the o/s balance at the end of 6 year term will be $3278 more.

I am still analyzing these figures but thought to share with you guys for your input


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