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Discussion Starter #1
Hi guys - I bought my first house 2 years ago for 450k and down payment of 5%. This was with a 5 year fixed mortgage at 5.29%. Just after I bought the financial world fell apart :p

My question is - should I sever my current mortgage, and pay a penalty to refinance with a variable rate loan? I don't think interest rates over the next 5 years are going to increase much due to the powers that be seeming to side with Keynesian economics. I'm sure id save a fair bit of money over a few years with a lower rate. I guess i could always lock in if they went sky high right?

What do you think?
 

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Have your asked the bank/lender what your IRR penalty is?
First get that number and then do your calculations.
These days the IRR makes most cases of refinancing unprofitable.
Esp. so early into the term.
 

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1) Go here: http://www.rbcroyalbank.com/products/mortgages/mortgage_calculators.html

2) Pick the 'Should I break my fixed rate mortgage'
3) Run the calculator

If it's close or a positive, call your bank and find out the ACTUAL amount to break your mortgage. In the past I'm told it was just 3mths interest, now they do a interest rate differential and its WAY higher penalty. I have a 220k mortgage with Scotia bank with about 2.5 years left @ 5.4% and my penalty a couple months ago was going to be like $12,000!
 

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Discussion Starter #4
Just phoned - its 16k to break so using that RBC link you sent me which is very good by the way, it looks like an OK move.
 

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Just phoned - its 16k to break so using that RBC link you sent me which is very good by the way, it looks like an OK move.
Before you commit to it, consider if you get a new mortgage if you'll have CMHC financing fees. If you are mortgaging for more than 80% of the value of your house you'll have to pay that fee. Also double check that there are no other fee's or something they are going to charge you. Banks can be sneaky...
 

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dilbert said:
In the past I'm told it was just 3mths interest, now they do a interest rate differential and its WAY higher penalty.
What do you mean by “in the past”? ... IRD has been the norm for decades ... 3 months interest is the exception.

dilbert said:
If you are mortgaging for more than 80% of the value of your house you'll have to pay that fee.
He already paid it.

harold said:
These days the IRR makes most cases of refinancing unprofitable.
It depends on whether the refinancing is to another fixed rate, or a variable rate ... the IRD penalty is typically calculated using fixed rates ... there can be substantial savings if the borrower switches from fixed to variable, and the timing works out.
 

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Discussion Starter #7
It depends on whether the refinancing is to another fixed rate, or a variable rate ... the IRD penalty is typically calculated using fixed rates ... there can be substantial savings if the borrower switches from fixed to variable, and the timing works out.
Yea this is exactly what made me take a double look at breaking and switching, e.g. from converting from a fixed rate to variable rate.
 
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