When you’ve got “rate envy”, does it make sense to refinance?


Who would have believed that mortgage rates would have continued to remain low for such a long period of time? Mortgage shoppers are looking at some of the lowest rates in history, and many homeowners with existing fixed-term mortgages are experiencing some “rate envy” about today’s rock bottom rates.

It might be worth a conversation about your options depending on how much time is left in your mortgage term. Typically, we think of a fixed term mortgage as a non-negotiable contract. And it’s true that there are financial penalties to re-negotiate. But, many clients have been asking for a mortgage analysis – a detailed look at the penalties versus the payoffs – to determine whether it’s worth refinancing.

What does it cost to get out of your existing mortgage?

Generally, you can expect to pay the greater of either a) three months’ interest, or b) the interest-rate differential. The interest rate differential can be high in some cases; your mortgage lender will expect you to pay them the equivalent of what they will lose by releasing you from your mortgage and lending the money at current rates.

So is it worth it?

For some homeowners it can be an important moment of opportunity, while for others, it may not be worth the costs involved.  Most lenders will include the cost of the payout penalty and other costs into the new mortgage so you don’t have to be out of pocket to complete the transaction. This can also occur when you “port” or “blend” your mortgage. This means if you sell your home and take your mortgage with you, the lender will “port” the cancellation fee to the new mortgage amount and “blend” the rate.

Before you make a jump to a lower interest rate, be sure to review your mortgage contract and ask questions about the penalty and how it applies in your circumstance. A little bit of research done in advance, can save you thousands of dollars later.


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