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Mortgage Refinancing Strategies

Your Mortgage & Your Strategies For Today’s Marketplace – Pt.2

“Refinancing Your Mortgage – A Window Of Opportunity Is Here”

Mark Huber interviews Monique Cornish
of “The Mortgage Group”

The call “rocked”!

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Click to listen in “streaming audio”…

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The teleconference call – Downloadable audio file in “zip” format

To “download” and read later, just “right click” the link below and “save as” to your computer or iPod

The Transcript of the “speaker notes” of the call

and here is the “bonus” Monique promised!

To “download”: “right click” the link below and “save as” to your computer…

3 month-Interest Rate Differential Calculator
– Excel Spreadsheet


I thought that I would include this article dated 12 February, 2009 for you to read.

Looks like Rob Carrick and Monique Cornish and I were all on the same page today…

The Art of Mortgage Renegotiation

ROB CARRICK- Business Editor – Globe and Mail Update February 12, 2009 at 6:00 AM EST
Story URL

Falling mortgage rates have revealed yet another way the banks are charging their clients more in these financially stressful times.

Rates on mortgages have fallen a lot in the past several months, prompting many people to ask about renegotiating in order to cut costs. “The bulk of my business today is people breaking their mortgages,” said Jim Tourloukis, a mortgage broker with Advent Mortgage Services in Markham, Ont.

The problem in breaking a mortgage is the penalty that lenders charge. Banks typically have two ways to calculate the penalty and recently they’ve switched to the more expensive one.

A little context may help you gauge how annoyed you should be about this. With a recession and global financial crisis hurting their revenues, the banks have been pushing up interest rates on lines of credit, charging more in service fees and adjusting credit card rules to extract more money from clients. Mortgage penalties are somewhat different in that they’re mainly influenced by what’s happening with interest rates.

It’s boilerplate in mortgage contracts for penalties associated with breaking a loan to be set at the greater of three months’ interest or the difference between the interest the bank could make on your mortgage as originally arranged versus lending money out at current rates.

Mr. Tourloukis explained that three months’ interest was the typical penalty until rates began to fall hard in the past couple of months. Now, the so-called interest rate differential, or IRD, is the larger penalty.

“The spread between the client’s rate and what banks can lend money for now has grown dramatically,” he said.

If you have any thoughts of breaking your mortgage, get on it today.

If mortgage rates fall further, and they could ease a little bit more, then interest rate differentials will grow in size and cost you more.

Mortgage brokers say breaking your mortgage is worth some thought if your current rate is in the low 5-per-cent range or more. Mr. Tourloukis said he’s been renegotiating five-year, fixed-rate mortgages at 3.99 per cent for clients who several months ago signed up for similar loans at 5.79 per cent. Other mortgage brokers are showing five-year rates in the low 4-per-cent range.

The first step in breaking a mortgage: Ask your lender what your penalty would be. There’s no standardized calculation of penalties, so your number will depend on your lender’s own policies and personal circumstances like the amount you’ve borrowed and the number of years left on your mortgage.

In some cases, breaking your mortgage just won’t make sense because of the steep IRD amount. “If you have a lot of time left on your term, it could be deadly,” said Vince Gaetano, vice-president at Monster Mortgage in Toronto.

Practices vary widely among banks, but one method for calculating the IRD is to compare a client’s original rate against the posted rate for the term that corresponds with the remaining time left on the mortgage. Example: You’re two years into a five-year mortgage, so your IRD would be calculated using the current posted three-year rate.

Once you know your penalty, ask your lender to show you how much interest you’d save by renegotiating with the best possible current rate. If the penalty overwhelms the potential savings, then you have a couple of options beyond giving up.

One is to try and negotiate the penalty lower, or have it eliminated altogether. Mr. Tourloukis said lenders have the discretion to help clients out this way.

Another is to chop the amount of money you owe on your mortgage, thereby reducing the penalty for breaking the loan. The way to do this is to take advantage of the prepayment privileges built into most mortgages.

For example, you might be allowed to prepay as much as 20 per cent of your outstanding balance in a year without incurring any charges. Make this lump-sum payment and then get a quote on the penalty to break your newly shrunken mortgage.

There are a couple of strategies to look at if you’d benefit from breaking your mortgage but can’t afford the penalty charge.

One is to take the cost and add it to your mortgage balance. In some cases you’ll still end up paying less interest than if you stayed with your current mortgage.

Another possibility is a blend and extend, where you jump into a new mortgage that blends your existing rate with the lower current rate and extends your term by a few years. There’s no penalty charged in a blend and extend, but you won’t save as much as you would if you paid the penalty and got the best possible current interest rate.

“If you want the better rate, you have to come up with the cash,” Mr. Gaetano said.

– End Column –

Remember, that the IRD calculations mentioned in the article above can be generally calculated with the IRD calculator that Monique Cornish provided as a bonus on the teleconference call:

“Refinancing Your Mortgage – A Window Of Opportunity Is Here”

Here it is again…

To “download”: “right click” the link below and “save as” to your computer…

3 month-Interest Rate Differential Calculator – Excel Spreadsheet

Now please take a moment and let us know what you think…

“Join the Discussion!”

“Let us know what you think. Or ask us anything. Or offer your own sage advice.”

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Mark Huber is a certified financial planner, author, speaker, coach and successful online entrepreneur. Marks philosophy: "The best way to predict your future is to create it...." Marks top requested titles: "The 8 Top Simple Ways To Get More Leads & Sales For Your Business On LinkedIn" "How To Blog To Make Money" "How To Get Rid Of Credit Card Debt Fast" "How To Get Rid Of Your Mortgage And Create Wealth - The UnCanadian Way" Marks mission: "To teach, support and empower people as they transform their lives!"