Mortgage Advice

[harry ballsonya]

My Mortgage is 233K with 3years 9 months left at 7.5... it was a cash back so my penalty to get out of it right now is about 25K
If I go into a Variable rate right now it would still be worth the penalty over the next 3 yrs 9 months , However I realize Prime is only going to go up,

So what should I do ? I have never had a Variable rate Mortgage, but I have to get my payment down

 

[1andun]

Advice on this board may be long and arduous. And I`m a banker. I would talk to you banker and have him explain all the scenarios.

VRM vs Fixed rate Mortage. Specifically how your payment will be affected as mortgage rates increase. Perhaps you could look at a 4 or 5 year fixed rate mortgage which would also lower your payment.

Why do you need to lower your payment?. You have 25 grand(for the penalty) so you must be pretty good with your money. I assume

 

[train]

For example a 3 year fixed rate motgage will cost you somewhere around 4.7% today. You would save 2.8% or roughly $19 grand (assuming you have low principal repayments ie a 25 year amortization) vs. the penalty of $25 k - so not worth it.

Going to a variable rate mortgage you save up to 5.25% or $12k per year so a 2 year pay back on the $25k with you making $12 k profit in the third year.......provided the rates don't change. Everyone is predicting a half-point interst rate increase mid-year.

In simple terms if over the last 2.5 years interest rates on variable mortgages do not increase by at least 2% on the average for that period you are better off converting and paying the penalty. Lot's of rounding but the above is pretty close.

 

[Mia.Colpa]

Going to a variable rate mortgage you save up to 5.25% or $12k per year so a 2 year pay back on the $25k with you making $12 k profit in the third year.......provided the rates don't change. Everyone is predicting a half-point interst rate increase mid-year.

I understand and agree with what you said, however expecting rates to stay the same over the next 3 plus years is unrealistic, they will change and at this time rates will be going up, it's a matter of how fast and by how much.

If cash flow is an issue, you can look at increasing your amortization period for 35 years.

 

[Cycleguy007]

I just renewed my own mortgage last week... 1.75% variable... (prime -.50) with an option to lock it at the fixed rate with no penalty at any time. Best of both worlds if you ask me....

 

[C Dick]

I just renewed mine at 3.85 for five years fixed. For a year we have been wondering whether to break it and pay the penalty, but rates have stayed low, so we waiting. Finally we were close enough to renew without penalty, and there are now indications that rates are going up, so we are happy. 3.85 is so low, we had almost paid it off, but we took it right back up to the limit, we are going to do some investing with it.