Many of you have probably been hearing about the latest dip in mortgage interest rates.

Let me start by explaining, what a No Frills Low Mortgage Rate really is?

You’re probably asking yourself, what the heck is a No Frills Mortgage Rate anyway.

Nobody said anything about “No Frills”.

The interesting part about the news, you never seem to get all the facts

Firstly, the “No Frills” is just that, it comes with many restriction or should I say lack of options.

Here are just a few for this latest “No Frills” mortgage :

1. Amortization limited to 25 years
2. Cannot refinance with, or switch your mortgage to, another lender before maturity
3. Heavy pre-payment restrictions
4. Complete in the 2 week special time frame

I’m not saying it’s a bad thing, but there are much better options.

In fact, just last month I witnessed a penalty of $49,000 from one of these “No Frills” programs.

The question still becomes, Is it worthwhile to try to break your current mortgage?

I’d like the share an article from the CBC

All across the country, mortgage specialists and brokers are busy fielding calls from people who’ve just heard about this week’s record low mortgage rates.

Bank of Montreal made the biggest splash by announcing a five-year fixed-rate mortgage of 2.99 per cent – the lowest advertised rate for such a popular mortgage term by any major Canadian bank, ever.

Yes, there are more restrictions than usual attached to this mortgage and it’s just a two-week promotion.

So what’s driving all these rate plunges at the chartered banks?

One element is that bond yields have been plunging recently, so market watchers say it’s not too surprising to see other rates drop, too, a reflection of there being more cash in the system.

“Mortgage rate declines have actually been lagging behind falling bond yields, driven by global economic uncertainty,” says John Andrew, a real estate expert and professor at Queen’s University’s School of Urban and Regional Planning. So what we are seeing here is a bit of catch up on the part of mortgage rates.

It is the bond market that is the bigger driver of longer-term fixed mortgage rates, not the Bank of Canada’s overnight rate, which directly affects variable mortgage rates and other floating loan rates.

With stock markets shaky and volatility reigning in the currency and commodity markets, nervous investors have been stuffing money into safe Canadian bonds – driving up prices and driving down yields.

The other reason cited by the experts is competition. “The first few months of the year are typically slower for the mortgage market,” says Mark Kocaurek, the chief lending officer at ING Direct Canada.

In a commentary earlier this week, he wrote that he expected lenders would lower fixed rates “over the short term in order to win more business.” A couple of days later, they did just that.

Time to break your mortgage?

So if you belong to one of the estimated three million Canadian households that currently have a fixed-rate mortgage, you’re probably wondering whether it’s worth trying to get in on this super-low mortgage-rate action.

The bottom line from the experts: it depends.

For one thing, there’s the penalty you pay if you do want to make a change.

The cheapest fixed-rate mortgages are closed mortgages – meaning that you can’t escape the interest rate you agreed to pay for five years unless you pay the lender compensation for the interest it would lose by letting you switch from a higher interest rate mortgage to a lower one.

There are two main variables that determine the prepayment penalty to get out of a fixed-rate mortgage early:

  • The difference between your higher-rate mortgage and the current mortgage rate, known as the interest rate differential penalty; and
  • The amount of time remaining in your mortgage’s term. The longer the time, the bigger the penalty.

It’s a complicated calculation – made all the more so because financial institutions have different ways of calculating penalties.

Some base their calculation of interest rate differentials on the posted rate (the current posted rate for a fixed five-year mortgage, for example, is 5.29 per cent – far above the actual per cent lenders are now charging.) Some lenders, though, use their discounted rates to do the calculation.

If you want to switch, the only way to know for sure whether you’d be further ahead is to ask your current lender how much it would charge to release you early from your mortgage.

Once you have that figure, it’s a relatively easy matter to figure out whether it’s worth your while to make the switch. Will the added costs of the prepayment penalty, and other costs that might be involved, be covered by the much lower payments over the next five years?

By the way, those penalties can be huge.

Our new i-Care program is set up specifically for this.

The video below gives you some insight in to the BEST way to go.

Go ahead and call me to discuss

Mark Fidgett, Your Vancouver Mortgage Broker For Life


P.S. Who’s the next person you know who wants to save thousands off their mortgage?
Be sure to give me a call so we can help them!