by Kerri Roberts, Island Savings Brentwood Bay –
Is it time to make a switch, or should your mortgage stay put? With so much information out there, it can be hard to decide. First of all, let’s define some key mortgage terms.
• Renew: Unless you pay your entire mortgage balance within the term, you’ll have to renew. Most people need multiple terms to pay off their loan.
• Refinance: When you choose this option, you pay off your existing mortgage by replacing it with a new one. You might refinance your mortgage to get a better rate or terms, consolidate debt or pay off your loan faster.
• Switch: Switching your mortgage means moving it from your current lender to another one. Unlike refinancing your mortgage, the only things that typically change are the interest rate and the term.
• Blend and extend: If you blend the mortgage rate from your existing fixed-rate mortgage with today’s rate, it creates a new rate and balance. For example, if you have two years left in a five-year term, you could blend your existing rate with today’s negotiated rate and extend it into a new five-year term.
3 switch-worthy situations. It’s important to know that if you switch your mortgage, there may be a penalty from your current lender. However, you might save more over time by switching to a new mortgage lender with a lower interest rate now.
Here are three times a mortgage trade-in could be beneficial.
When interest rates are low. Interest rates are incredibly low, and consumers will likely see impressive interest rates on their borrowings for the foreseeable future. People may save enough interest on their mortgage payments going forward to make up for any penalty.
If your life has changed. Life changes every day, but we’re talking about big financial ones like marriage, divorce or losing your job – this is especially relevant right now as many Canadians find themselves without work due to the pandemic.
As people navigate the pandemic and focus on what’s ahead, many are working hard to get their finances back on track. Switching your mortgage could help you save money in the long run.
If you have high-interest debt. If you’ve got debt on a credit card, loan or line of credit, you’re paying interest. If you’re able to consolidate your debt into your new mortgage when you trade in your existing one, you’ll have a lower interest rate on your payments. Also, this will simplify things, because you’ll be making one payment instead of multiple.
We always recommend that you meet with your advisor to go over the best options for your personal situation.
Kerri Roberts is a Branch Manager at Island Savings, a division of First West Credit Union. Connect with Kerri at keroberts@islandsavings.ca.
