The Benefits of Early Mortgage Renewal

Early Mortgage Renewal gives a homeowner an exceptional yet brilliant opportunity to conciliate a lower rate for the next term...

Early Mortgage Renewal gives a homeowner an exceptional yet brilliant opportunity to conciliate a lower rate for the next term. It further gives you the liberty to make the most out of the current payment rate in case of the market experiences inflation, leading to a steep rise in the existing rates.

What is an Early Mortgage Renewal?

An early Mortgage renewal is an opportunity to change your Mortgage mid-term before the designated maturity date. It is considered wiser to make early renewal when interest rates are changing.

Those who opt for Mortgage renewal usually do it to get an upper hand financially by taking advantage of lowered interest rates, to cut down on monthly payments or to avail cash to fulfil other urgent needs. Whatever may the reason be- there is a cost-benefit assessment procedure that one can undertake to determine whether opting for a renewing or refinancing would be a wise decision.

An early Mortgage renewal, in general, signifies that the borrower breaks the terms of his or her current Mortgage to register to a new term at a rate that suits their requirements. Before you rush into the decision, one important thing to keep in mind is that breaking your existing contract with lead to a prepayment penalty. This might include a penalty of either three months interest at your existing interest rate or the interest rate differential (IRD).

Why is Breaking Your Contract and Negotiating for a New One Advisable?

Ask any Mortgage Broker in Canada and they will recommend you go for an early Mortgage renewal depending upon the current market rate and other significant factors. Before proceeding further, let’s simplify things. Most residential Mortgage contracts are “closed terms”. This means that if you wish to amend it before the contract matures, you’ll have to break the contract, and this involves a pay-out penalty.

A good Mortgage Broker will assist you in analysing how much you need to pay as a pay-out penalty and whether the renewal will help you recover the penalty or justifies the payment, to say the least.

Few instances when you might want to go for an early renewal/refinance are:

  • You want to cut down on the monthly Mortgage payments to have better affordability.
  • You want to get rid of the Mortgage faster, so you plan to take advantage of new lowered interest rates.
  • You want to alternate Mortgage for getting access to equity in your home or need a quick respite from a financial emergency.

While the reason to choose an early Mortgage renewal can be any of these, stats show that most homeowners go for it because they want to make the most of interest rate arbitrage opportunities. Let us help you understand how to reap the benefits of Interest Rate Arbitrage Opportunities.

Arbitrage- What does it mean?

In the financial bibliography, arbitrage is a term widely used to explain conditions where homeowners can enjoy the same monetary advantage (a Mortgage loan on their property for a specific time frame) by taking advantage of two different markets and their pricing at the same time. This can be done by switching from one Mortgage lender to another with the help of a Reliable Mortgage Broker.

Let us help you understand how shopping for a better interest with an early Mortgage renewal can save you a lot of money.  Suppose you own a residential property that’s valued at $350,000 with a $280,000 Mortgage (with an amortization period of 25 years). The 5-year fixed-rate term is up for renewal, and your existing lender proposes the renewal for the next 5-year term at a 2.69% fixed rate. Accepting this offer means you’d need to shell out $1,281 monthly which amounts to $34,744 in interest for five years.

However, you start shopping around and zero down on a different lender who is ready to offer you a new fixed interest rate for the next 5 years at 2.34%. If you accept the proposal from the new lender, you’d pay only $1,232 monthly, which calculates to $30,144 in interest over the 5-year term, saving you $4,600 than what you’d pay to your current lender.

How Do Arbitrage Opportunities Happen?

If you are in a financial emergency, an arbitrage opportunity might help you. If you’re wondering how these opportunities occur, it can be explained by recognizing how your current lender calculates the pay-out penalty in case you terminate the contract and choosing another lender.

As and when interest rates in the Mortgage market undergo a considerable change, many lenders either increase or decrease their rates primarily on the 5-year Mortgage terms and then later on making amends to their short-term Mortgages.

Mortgage Lenders mostly use the rate that is nearest to the remaining time in your current contract to estimate your pay-out penalty.

How to Determine and Tap into a Savings Opportunity Window?

Most homeowners looking out for an early Mortgage renewal have this question in their minds. The answer is simple. There exists the Cost-Benefit Analysis method which Equity Mainly Matters can help you with. We assist you with world-class early Mortgage renewal services. While doing the CBA, we evaluate the current value of the total monthly savings from a lower rate and compare it against the cost to break your existing Mortgage contract.

As a renowned Mortgage Broker in Toronto, we help borrowers by shopping their files around to other lenders to secure a lower interest rate for our clients. We also negotiate on the behalf of our clients to bring get them the lowest rate with early Mortgage renewals.