Should you renew your mortgage early to lock in your interest rate?
We knew that these ultra-low interest rates couldn’t last forever. CIBC, TD and most recently, Royal Bank have all announced that their mortgage rates are going up by the end of the year and up again by the end of 2019.
So the question is, should you renew your mortgage early in order to avoid the higher interest rates that are on the horizon?
Unfortunately, the answer is not as straightforward as the question.
Let’s take a look at a few of the things you will need to consider:
1.Variable Rate Mortgages
If you have a variable rate mortgage, you probably have the option to convert it to a fixed rate mortgage at certain points during the term. While this may give you some peace of mind, you will surely be paying a higher rate of interest once the mortgage is fixed.
The bigger the spread is between the variable and fixed rates – and the shorter your amortization period is, the less likely you are to benefit from converting it. You also need to remember that if you do convert from a variable rate mortgage to a fixed rate mortgage that there will be a higher penalty should you someday need to break your mortgage.
2.Fixed Rate Mortgages
If you have a fixed rate mortgage but are concerned about the forthcoming interest rate hikes, then it may be to your benefit to break your mortgage in order to renew early. In order to figure out whether it would be to your advantage, you have to compare how much money you would save in interest to how much it would cost you to switch.
3.Blend and Extend Options
Some mortgages allow you to renew early without breaking them. This is called a blend and extend option. It allows you to extend the term of your current mortgage and gives you a blend of the interest rate that you’re paying now and the one you would have paid had you waited until the end of your term. Keep in mind, however, that does not always guarantee you will get the best rate.
If you are concerned about interest rates going up before you have to renew your mortgage then it is always best to be proactive and talk to a professional mortgage advisor. Call the Matrix Mortgage Global team today – we can help you decide whether renewing your mortgage early would be to your advantage.