If you’re wondering how you can take advantage of these historically low interest rates, you’re not alone. Canadians are clambering to do just that!

So what are your options if you want to save money on your mortgage with the low interest rates?

Options for lower interest rates

Blend and extend

If your maturity date is a ways away and you don’t have the funds saved to pay the penalty, talk to your lender. They may offer a blend and extend option.

Blend and extend means that your lender is going to blend your penalty into the new rate and then extend your mortgage for a new five year term at that new, blended rate.

Here is an example of a current mortgage that I looked at for clients:

  • Current interest rate 3.39%
  • Current maturity date April 20, 2023
  • Current balance of $321,852
  • Penalty as of today is $8,941
  • Blended rate 2.44%
  • Interest savings over just the next two years of $7,500
  • Additional savings due to lower payments of $4,640 over just the next two years

As you can see, while the penalty is high, the savings of both interest and monthly payments is significant. And this is just over the next two years!

Transfer your mortgage to a new lender

If your current mortgage rate is above 2%, it may be beneficial to transfer your mortgage to a new lender. When you transfer your mortgage, you are required to re-qualify. This means you need to provide similar documentation as when you purchased the property.

Opting for a transfer is like an early renewal, although most lenders won’t allow you to simply pay the penalty and opt for a lower rate. They will want you to make a significant change to the mortgage, like taking out some equity. This is why it’s usually easier to switch to a new lender offering low rates.

We can capitalize up to $3,000 of the penalty into the new mortgage, any additional penalty cost will need to come out of your pocket. I typically recommend that clients pay the entire penalty out of pocket, if the funds are available, because the whole point of this exercise is to lower the carrying costs. While capitalizing some of the penalty into the new mortgage may very well have you coming out ahead, not doing it will make the financial win even greater.

Wait until your maturity date

There are situations where the lender either doesn’t offer a blend and extend option or the blended rate is higher than their current rate – yep, that can happen. In these cases, you’ll have to stick it out until your maturity date.

The good news is that the analysts are forecasting low rates for at least two years. If your mortgage current term matures in the next two years, and the penalty costs are too high, wait it out. You may not win now, but you certainly may when it comes time to renew.

If you have any questions or would like me to run some numbers for you to see what options are available to you, send an email to susan@ashtonmortgages.ca. I’m here to help!