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I signed up for a mortgage at a bad time, BOC was doing the shuffle last year and rates went up/down rather quick. Very shaky how rates could be 2.3% all the way to 3.5% within the span of 6 months. I'm looking on Ratehub right now. I want to knock my mortgage rate down by a full percent if I could refinance, is there a penalty this early on, or is this an option you think would be worth exploring and talking to the bank about?
 

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There will definitely be a penalty. If you booked a variable rate (which I always recommend) you would be able to convert to a fixed without penalty. But you’d be way better off with a variable rate right now. If you have a fixed rate, penalty will be the higher of IRD or 3 month interest.

Odds are, you’re better off staying put.
 

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If you booked a variable rate (which I always recommend) you would be able to convert to a fixed without penalty.
If you try to do that, don't they only offer you a blended rate which is usually much worse than what market fixed rates are?
 

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If you try to do that, don't they only offer you a blended rate which is usually much worse than what market fixed rates are?
Variable to fixed does not trigger penalty. The rate offered usually is not be the best rate available - but every lender is different.

Blend rates could be offered when going fixed to fixed. Again, some lenders may do it differently. It’s usually a combination of the contract rate and posted rate in order to absorb the penalty.

What people fail to understand is that any change to a mortgage term breaks the contract and triggers a penalty. Banks try to satisfy their clients by offering blends and/or new contracts depending the situation and absorb the penalty. Client may come out satisfied but fail to truly understand what the lender did for them. It’s like bringing back a leased car after a few months and trying to get a full refund. Doesn’t always work in clients favour.
 

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Seems to me that how much of the term remains has some bearing. I was asked just today about refinancing where the mortgagor had a variable rate mortgage for 5 years (at prime minus one half) that ended in August 2018. She then signed up for 2 years fixed at just over 3%. So that term will end in August 2020. My advice was simply to wait until then. There will then be no penalty and rates will likely be as good or better than today.
 

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Seems to me that how much of the term remains has some bearing. I was asked just today about refinancing where the mortgagor had a variable rate mortgage for 5 years (at prime minus one half) that ended in August 2018. She then signed up for 2 years fixed at just over 3%. So that term will end in August 2020. My advice was simply to wait until then. There will then be no penalty and rates will likely be as good or better than today.
Its a combination of remaining term, penalty amount and contract rate vs what the current rate would be for a similar mortgage with remaining term. Add to that every lender uses a different calculator and different rates to come up with a figure. Banks have the worse calculators. Virtual lenders tend to excel in these scenarios.
 

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Its a combination of remaining term, penalty amount and contract rate vs what the current rate would be for a similar mortgage with remaining term. Add to that every lender uses a different calculator and different rates to come up with a figure. Banks have the worse calculators. Virtual lenders tend to excel in these scenarios.
Yes, I understand those things. It is with those considerations in mind I gave the advice I did. I cannot envision a scenario where, with only about 5 months left on the term, with what I consider to be a low interest rate already, it would make much sense to negotiate for new financing now. I think it unlikely she will do worse in 5 months and, quite likely, better. And we are talking in terms of a principal sum of about $225,000. She told me she started at $450,000 about 10 years ago, so she has been on a shorter than usual amortization. Not sure what amortization she might be on, I have not bothered to calculate, but she said she pays just over $2,000/mo. principal and interest. So most of that would be in reduction of principal.
 
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