Blended Mortgage Rates
“One Way To Bring Down Your Fixed Mortgage Rate Is By Extending
Your Mortgage Term”
With the fixed mortgage rates at near record lows, and the prospects for further decreases based on where the 5 year bond yield is sitting right now, everyone with an above market fixed interest rate on their existing mortgage is trying to figure out how take advantage of these record setting rates for fixed interest terms.
The big problem for most fixed rate mortgage holders is that if they were to leave their lender for a lower fixed or variable rate somewhere else, they would have to pay a prepayment penalty based on three months interest on the principal amount being repaid, or interest differential, whichever is the higher.
So if you have years left on your fixed interest rate term, the prepayment penalty could be significant and prohibit you from mortgage refinancing at all.
One solution that will be available to some fixed interest rate holders (this will depend on your mortgage lender) is to blend your existing mortgage term with a new mortgage term at the lower rates.
For example, if you have two years left on your existing fixed term mortgage where the annual posted rate is 4.5% and you are prepared to sign up a new two year term with your mortgage lender where the rate is 3.5%, the new blended rate between the two mortgages will be close to 4.0%, depending on the exact day you refinance and if there are any other lender costs that get added into the equation.
Through this blending process, you are basically paying the prepayment penalty over time, but there is no up front outlay of funds, no mortgage discharge for an old mortgage, and registration for a new one.
The end result is that you have been able to reduce your fixed interest rate.
You’re still going to be at a rate higher than the existing market rates, but at the new blended rates you can either drop you payment amount as you will be paying less total interest, or leave the payment the same and pay down the principal faster.
Once again, this will not be available through all mortgage lenders, but for those that do offer this type of mortgage rate blending opportunity, it can be something to consider, especially if fixed rates continue on a downward path.
About the Author Joe Walsh
I'm a Toronto Mortgage Broker that arranges mortgage solutions on residential and commercial real estate property. With over 30 years of mortgage financing experience, I'm able to quickly assess your financing requirements and provide relevant solutions for your immediate consideration. Joe Walsh Google+ YouTube Channel