Roughly speaking, between 1.2 million and 1.3 million individual mortgages renew next year. The challenge is that for most people coming out of a five year term, the new payment at renewal will be significantly higher than they were paying before.
By way of an example, let’s look at a mortgage Marty and Mia have on their home on Vancouver Island.
In early 2019 they secured a $450,000 mortgage at 2.79% for five years based on a 25 year amortization. The monthly payments were $1387.61, but they had been paying bi-weekly. They had also made pre payments along the way, which reduced the amount owed and also reduced the amortization further.
Earlier this year, their mortgage came up for renewal. The remaining balance will be $255381. Their bank offered them a 5 year renewal at 5.04 % based on a 14 year 6 month remaining amortization. Their new payments become $ 2064.81, approximately $680.00 more than they were previously paying.
Marty and Mia ask their lender’s representative for help on the rate or even options to reduce the payment. The representative offers no assistance other than; ‘this is what’s on offer’.
When they came to us, the first thing we did was have a conversation to identify what Marty and Mia needed and where they were now.
During the conversation, we established that:
1. They wanted to see if they could lower their payments.
2. They were fairly certain that a move was in their future, as they had a growing family.
3. They would continue to have cash available to make pre payments.
After a bit more discussion, we recommended the following:
a) An adjustable payment variable rate mortgage with a discount of P. - .95%.
b) A mortgage re-amortized to 25 years, in order to reduce payments.
c) 20% pre-payment privileges.
We recommended the variable rate mortgage because we believe mortgage rates will fall well below what’s currently offered for fixed rates and because the early payout penalty for variable rate mortgage is substantially lower than those of a fixed rate mortgage.
Because the lender could not / would not match the rate we could obtain elsewhere and did not offer either the 20% prepayment option or the re-amortization, Marty & Mia elected to switch out to our recommended lender.
We were able to switch them out within 3 weeks, with no cost to them.
They have enjoyed two, quarter point rate drops since funding with more on the way.
The key here is that we were able to provide them with the advice they needed to plan and take advantage of lower payments and greater flexibility.
Brokers provide that kind of advice and strategy that you simply won’t get from a mortgage service provider. We’re here to help - always.
Komentar