While I originally posted this article in September of 2015, I think now is a good time to take another look.
Fixed mortgage rates are at an all-time low. If you have a mortgage that is over 3.09%, then you should consider breaking it, paying the penalty and getting into today’s lower rates.
That’s the short answer… the full answer is a little more complex, but it’s really just simple math. If the savings is greater than the cost to break, then the answer is obvious. You should do it! I’ll give you some real life examples of clients whose savings could be huge $$s today if they paid their mortgage and the penalty and went into a new lower rate mortgage. Check out these success stories…
EXAMPLE 1: $710,000 balance @ 3.59% with 8 years to go.
These clients took a 10 year fixed rate mortgage 2 years ago. Today, they can turn that into a 5 year fixed rate at 2.59%. So, here’s what this looks like….
Current monthly payment is $3773 with 23 year amortization remaining…
The First-Time Home Buyer Incentive (FTHBI) will officially begin on Monday, September 2. The program was initially announced during the Federal Government’s budget launch in March. The down payment assistance program will be administered by the Canada Mortgage and Housing Corporation (CMHC), and has been touted by the feds as a partial solution to the current housing affordability crisis across Canada.
Despite promising to make homeownership more affordable, industry experts are concerned that the program will only help a handful of homebuyers.
How does the FTHBI work?
As the name suggests, it’s available only to first-time homebuyers, and applicants must also meet the following criteria:
earn a household income of less than $120,000 a year
qualify for and purchase mortgage default insurance
make a 5.00 to 14.99 percent down payment from your own resources
limit your mortgage amount plus incentive amount (combined) to no more than four times your household income
purchase a home priced less than $565,000…
If you’re in the market for a new home you probably understand the different mortgage options. But what about amortization? Should you go short or long on your amortization, and what impact does it have on your finances?
The most common amortization is 25 years. If you have at least a 20 percent down payment, however, you can go higher—up to 30 years, and sometimes longer.
Shorter amortizations are also available. Their benefit is helping you accumulate home equity faster. If you can afford the higher monthly payments of a shorter amortization, you can save thousands in interest payments.
Why Go for a Long Mortgage Amortization?
After the 2008 recession, the Canada Mortgage and Housing Corporation (CMHC) progressively lowered the maximum amortization period on default insured mortgages. Formerly, homebuyers could amortize their mortgage over 40 years. Now, homebuyers who do not have at least 20 percent equity are limited to a maximum amortization of 25 years.
If you do have 20 percent-plus equity, you have the option of choosing a 30-year amortization…