mortgage renewal

[moncton golden flames]

i am considering not selling my house and renewing my mortgage that expires in 6 months. i am looking at longer term mortgages in the 5+ yr category.

i expect interest rates to rise over the next decade, so locking into a good long term rate is desirable. does anybody have any experience with this type of renewal or have any advice?

[MoneyGuy]

Mike Oxlong is the resident mortgage broker. I'm sure he'll be along before too long to offer an opinion. Usually I'd go short term but this may not be the time to do that. If you google Moshe Milevsky of York University he does studies comparing going short vs. going long and he's found that going short wins over 80% of the time, but he's now saying that this might be one of those one-in-five times that long wins. There are very good five-year rates right now. Mike Oxlong will be able to help you.

[moncton golden flames]

thanks money guy. i too feel that long is safer these days. right now, invis is showing a 10 yr fixed at 5.15%.

[moncton golden flames]

Originally Posted by fotze

I imagine the payout penalty for a 10 year mortgage would be devastating, would it not?

very possible. i was thinking it might be an attractive assumable mortgage if i ever decided to sell.

[Gravitykillr]

I can't speak for most other F.I's but I know with ATB Financial they offer a 10 year rate which is split into 2-5 year terms, so after 5 years you get a renewal notice indicating you can keep your current rate or switch to something different, so the payout is calculated on the basis of a 5 year term.

[moncton golden flames]

Originally Posted by Gravitykillr

I can't speak for most other F.I's but I know with ATB Financial they offer a 10 year rate which is split into 2-5 year terms, so after 5 years you get a renewal notice indicating you can keep your current rate or switch to something different, so the payout is calculated on the basis of a 5 year term.

i just looked it up on their website. 10 yr fixed rate of 5.7% seems very attractive.

what do you guys think interest rates will look like in 5 to 10 years?

[Mike Oxlong]

I do think it it wise to lock into a longer term right now as well. With rates at historical lows it is silly not to take advantage of them. With that being said I generally try to sway my clients away from anything longer than 5 years.

7-10 years from now is a long time and a lot can change in your life. Maybe you get married, have kids, need to move, change jobs, get divorced etc.... all types of life changes can happen in 7-10 years which can affect your housing needs.

Like Fotze said payout penalties on the 7-10 year mortgages can get pretty high which can really cause you issues down the road should you need to get out of the mortgage.

I do think rates will rise over the next couple of years and who knows what will happen in the next 5-10 years. IF you are planning on staying in that house I would get into a 5 year term. I think that is a happy medium where you take advantage of today's low rates but don't lock yourself into a term that is too long and can handcuff you down the road should your life situation change.

You can get a 5 year rate at about 3.89% right now which sets you up nicely for the next 5 years.

Who knows where rates will be in 5 years from now? You may be able to get another 5 year term at that point in the 5 - 5.5% range which is where you would be now if you took a 10 year term. However you wouldn't have taken advantage of the 3.89% rate for the first 5 years.

Yes rates could potentially be higher than 5.5% five years from now, and that is a risk you will have to take.

If it were me though I would take the really low 5 year term now and see how things look after that. If rates have climbed significantly after 5 years you can always start going to shorter terms at that point which will offer lower rates than the 5+year terms.....

[Stillman16]

My mortgage is up for renewal near the end of this year, how early should I start looking at options? How early can I renew?

[Mike Oxlong]

Originally Posted by Stillman16

My mortgage is up for renewal near the end of this year, how early should I start looking at options? How early can I renew?

I would start talking to a broker around 5-6 months ahead of time. I can generally get a 4 month rate hold put in place for clients. So basically 4 months out from your renewal we lock in that rate, if rates go up you are covered, if they drop then you will get the lower rate.

[1stLand]

Originally Posted by moncton golden flames

very possible. i was thinking it might be an attractive assumable mortgage if i ever decided to sell.

It will definately not be an attractive assumable mortgage. Atleast not in the short term.

10 years is way too long unless you are planning on staying put.

Not alot of buyers out there are willing to assume a mortgage. Atleast not the buyers I have been working with this past year.

I find alot of buyers are going for a variable mortgage.
I am not saying these are responsible or conservative at all, but that is just my observation.

I just got a mortgage on a condo I purchased - 5 year fixed for 3.5%
I am pretty happy with it.

[ken0042]

Originally Posted by 1stLand

Not alot of buyers out there are willing to assume a mortgage. Atleast not the buyers I have been working with this past year.

Yeah, but if a few years down the road when mortgages rates are sitting at 8% and you have a seller with an assumable mortgage at 3.9%; that can make the house sale more attractive; so I get what MGF is thinking.

That being said; I wouldn't lock into a long rate for that reason. Because if you think you might sell within that term; locking in can cause you pain. Just to clarify what others have said; the penalty for withdrawing early is the total interest remaining. So using simple interest (for the sake of simplicity) if you have a $250K mortgage locked in at 4%; and you want to end the mortgage 2 years early; the penalty would be $20,000.

I would take the longer mortgage if you have already been in that house 10+ years and have no plan on moving ever.

The only reason I'm personally sitting on a 5 year term is I assumed my current mortgage due to bad credit at the time; and when renewal came up my bad credit was still on my report. I just went with what the bank offerred me so I wouldn't have to re-qualify.

[Deegee]

Just to clarify, payout penalties on mortgages with terms over 5 years cannot be the interest rate differential on the remaining term.

In other words, I can't imagine a 10 year prepayment penalty being worse then a 5 year prepayment penalty.

[Ashartus]

I think for most mortgages the maximum payout penalty is 3 months interest (that's all I have). Still can be a significant chunk of change if you have a big mortgage.

Also, in my experience if you move and get a new mortgage with the same bank they're often willing to waive the penalty in order to keep your business, particularly if your new mortgage is at least as high as the old one. Obviously that limits your ability to shop around for the best interest rate, but when I did this they also gave me a rate that was pretty close to the best I got shopping around, and when including their waving of the penalty worked out to the best overall deal.

[moncton golden flames]

Originally Posted by ken0042

Yeah, but if a few years down the road when mortgages rates are sitting at 8% and you have a seller with an assumable mortgage at 3.9%; that can make the house sale more attractive; so I get what MGF is thinking.

That being said; I wouldn't lock into a long rate for that reason. Because if you think you might sell within that term; locking in can cause you pain. Just to clarify what others have said; the penalty for withdrawing early is the total interest remaining. So using simple interest (for the sake of simplicity) if you have a $250K mortgage locked in at 4%; and you want to end the mortgage 2 years early; the penalty would be $20,000.

I would take the longer mortgage if you have already been in that house 10+ years and have no plan on moving ever.

The only reason I'm personally sitting on a 5 year term is I assumed my current mortgage due to bad credit at the time; and when renewal came up my bad credit was still on my report. I just went with what the bank offerred me so I wouldn't have to re-qualify.

i will have been in my home for 5 years this june. the future wife and i are committed to calgary for probably at least the next 5 years, maybe more. knowing that we want to be here in the mid term is what is making me look at any advantages that a 5+ yr renewal can offer.

i think i'm in a good spot. inner city location, which to me provides insulation to major price corrections, unlike the outer burbs. it's a revenue property with a fully suited basement, and it's on an r-2 lot, which i believe has a value, and i amortized over 25 years, not the 30 or 35 that a lot of people my age have. for my first home purchase, i'm quite proud i did so well, in my opinion anyway.

how does a renewal work anyway? is only the remaining balance on the mortgage subject to the new interest rate? what sort of fees can i expect with a renewal?

[Mike Oxlong]

Originally Posted by moncton golden flames

how does a renewal work anyway? is only the remaining balance on the mortgage subject to the new interest rate? what sort of fees can i expect with a renewal?

It's pretty straight forward really.
The new lender just pays the old lender the remaining mortgage amount out and they take over the entire remaining balance at the new rate.

Most lenders will charge you about $250 or so when you leave them as "admin" fees but sometimes the new lender will pay those for you.

As long as you are just doing a straight switch to the new lender then a company called FNF will do the legal portion of it and will actually come to your house to get you to sign the documents. Saves you time and the legal fees.

If you are adding anything on to the mortgage like credit card debt or a line of credit perhaps, then it is considered a refinance and you have to go through an actual lawyer and you are looking at fees for that service.

Troutman on here has really good rates for CP members. He would be worth talking to for anyone that needs a real estate lawyer.

[Clarkey]

Troutster is the man.

[Bill Bumface]

If you can get a 3.5% for 5 years and renew for another 5 years after that and rates are at 7.5% for a 5 year I think you still end up ahead as you're paying that 7.5 on a smaller balance.

If you take the 3.5% and put all the money you would have been paying towards a 5.5% interest rate and dump it on your principle every month you will be so far ahead of the game compared to most people it isn't even funny.

[Travis Munroe]

Give Mike a call, he is a great guy.
I agree with most of you where +5 years is too long. None of us know where things will be by then let alone what can happen between now and then.
The next 3-5 years are much easier to give a prediction on. IMO, the next year will see quite a bit of hype with these low rates and the approach of spring. Then interest rates will continue to rise and things will slow down to a normal rate for 2012. Anything beyond that I have a tough time just giving a guess. Imagine trying to guess 10 years from now