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31 Jan

Transferring Your Mortgage For A Lower Rate!


Posted by: Peter Paley

We have a couple of applications on our desk at the moment.  Our clients have built their new home and love it.  However, the build process was delayed, delayed, and delayed some more.  Their initial rates held by their banks in the 2%-4% range quickly became close to 6% in the last half of 2023.  This meant higher payments and higher qualification standards.  Some buyers had to walk away from their new home and deposit, and the ones who managed to qualify for a mortgage are probably not too happy with their new payment.

I’m here to offer a solution that could save $1000s of dollars in unnecessary interest.   The example today is a $500,000 mortgage that started in August 2023.  The mortgage was initially insured by one of Canada’s Mortgage Default Insurers (CMHC/Sagen/Canada Guarantee).   I’ll break down the numbers below.

$500,000 – Initial Mortgage Balance
5.89% – Initial 5-year Fixed Rate Mortgage
25-year amortization.
$3,166.41 – Monthly Payment
$494,731 – Current Balance as of Feb 1, 2024

What happens if the client decides to pay their penalty and transfer their mortgage to us???  We can absorb up to $3,000 of costs into the new mortgage (note: we cannot exceed the original mortgage amount of $500,000).  Any additional fees will be paid by the client out-of-pocket.   Let’s compare some numbers!  The penalty to break their mortgage is $7,285 (calculated on a Big 5 bank’s payment penalty calculator).

$497,731 – New mortgage amount
$7,285 – Penalty charged by current BANK
4.94% – New 5-year Fixed Rate
25-year amortization
$2,891 – New Monthly Payment

The costs to the client will be approx $5,402 (Penalty difference, Legal fee, discharge fees, etc).

The Savings:
$275.00 – Savings in Monthly Payment
$22,890 – Savings in Term Interest (60mos)
$6,363 –   Difference In Principal Paid.

Now, what happens if we take the $275 in monthly savings and re-apply this amount to the mortgage?
$25,039 – Savings in Term Interest (60mos)
$25,013 –  Difference In Principal Paid
3-year 10-months knocked off the 25-year mortgage amortization.

Are those savings worth the $5,400 cost?  We let you decide.  Getting a 2nd opinion this year is very important, even on your new mortgage obtained in 2023.

You may just save a bundle!

Contact us for more information!