Many Canadians walk into their bank when they need a mortgage and walk out with a 5 year fixed rate…regardless of their future plans and goals. The average mortgage in Canada lasts just over 3 years...this means most people end up paying a needless penalty because the Banker never took anytime to listen to their plans. As your Mortgage Expert, the most important thing is listening to you, our client. What you want to do in the future, your dreams and goals are the first step in building our overall plan. When we have heard that, we can then fit the right product to attain that goal.
Obviously not everyone can predict their exact future, so built in flexibility can be important as well. So what happens when you decide you want to move before your mortgage term is completed? Whether you are in a fixed rate or a variable will play a role in deciding the best course of action to move forward with. Variable rate mortgage products are generally more flexible than fixed rate products, but also carry more risk in the future, since the rate can go up or down. Let’s assume you need to add funds to your mortgage to buy your new home. With a variable rate mortgage, you can likely port your existing mortgage to the new home, and depending on the lender, they will come up with a variable rate discount for you based on their then current offering. If that current offering is a better discount than you have now, they may have you pay the penalty on your existing mortgage (3 months interest), they may have a way to blend the current discount they offer with your current discount, or they may just offer you the new discount on your new mortgage.
Fixed rates are simpler…the lender will offer to blend your current rate with their current rate on the new portion you are borrowing. This blend should be reviewed, as each lender does it differently, some use the discounted rate, some use posted…your end result can be reasonable or a rip-off. It is at this point we will run the numbers for you and help you decide if the Blended rate makes sense to continue with or if paying the penalty and getting an entirely new rate is the better way to go.
All of these calculations will have an effect on what the best choice is for you…take your time and build this important step into your moving plan.
Michael Anthony Lloyd - Mortgage Expert