Greetings Kevin,
I have 18 months left on my current five year, fixed term 5.65% rate mortgage. I’m paying $2005.88 per month currently. Our original balance was $350,000.00 amortized out over 30 years with a current balance of $332,555.72. They tell me if I break my mortgage now, we would have to pay a $5,000.00 penalty fee.
Is it worth it for us?
Great question so let’s take a closer look at your situation today and then compare the numbers to see if it makes sense for you.
You first need to know exactly how much of the “interest portion” only you will have to pay over the next 18 months. This does not include the principle portion or the amount that you are actually paying out each month to pay off your house.
Based on your numbers above you will pay $29,044 over the next 18 months in interest only. Currently we are writing five year fixed term mortgages in the 3.19 to 3.35 percent range. Mortgage rates are at historically low levels and they do change daily so these numbers will be an “estimate”.
Based on a 3.19% current rate levels you would pay roughly $15,770 over the next 18 months in interest. I included the $5,000 penalty fee ($332,555.72 + $5,000 = $337,555.72) into a new five year fixed, amortized over 26 years – plus 6 months, the same period remaining on your current mortgage.
In your case you would save roughly $13,280 in interest only payments over the next 18 months to break your current mortgage and refinance now at lower levels. Your monthly payment would also decrease and you would continue on with your new mortgage assuming you went fixed for five years.
There are many other mortgage options/products to consider today of course. Most will agree that mortgage rates will be higher 18 months or sooner out from today’s date so by waiting to the end of your term it may end up costing much more in unnecessary interest only payments when you renew.
Like other investments, your mortgage also needs to be reassessed by an expert, minimum on an annual basis to make sure it is still the best available product possible. In the end you just want to pay off the principle portion of your home so you can be living mortgage free sooner rather than later.
Regards,
Kevin
About the author: Kevin McAmmond
Kevin is the Regional Manager of Regional Media Group based in Oakville.
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