Comments on: Blending and Extending

By: Sampson

Sampson — Tue, 28 Apr 2009 19:37:40 +0000

I absolutely agree with you Gail – you have to very disciplined with paying down the mortgage to benefit from any options where you pay the penalty (either out of pocket, or rolling into the new mortgage).

By: Pat

Pat — Thu, 23 Apr 2009 20:55:29 +0000

We have a 5 year mortgage (280K) (started Apr 2007) at 5.25% (25 yr amortization). Would like to take advantage of rate decrease. Have been offered a blended 5 yr mortgage by BMO of 4.95%. I thought we could get lower? or is this ok? Or second option 3.85% over 5 yrs (but pay penalty of $11K). All advice appreciated.
Pat

By: Jo

Jo — Wed, 08 Apr 2009 02:06:31 +0000

We just renewed out mortgage. Our original interest rate was 6.15% and we were paying accelerated payments. We locked in to a 5 year term at 4.25%. We left our payments the same so we’re really paying off the mortgage – kind of like ‘double acceleration’.

It will be paid off in a little over 15 years. We started off with a 25 year amortization so that saves us a lot of money.

I was so nervous about our mortgage renewal. I’ve been reading horror stories on line. It was a piece of cake though. Thought about going variable but we are more comfortable with the fixed rate.

By: Gail Says...

Gail Says... — Fri, 03 Apr 2009 18:21:06 +0000

Sampson, the only downside to your strategy is that most people roll the penalty into their mortgages and then do NOT prepay the principal, choosing instead to keep the spending room in their cash flow. In the end they save nothing because after lowering their interest costs, they rack up the interest over the long-term amortization, or worse, by further consolidating debt into their mortgages. Oy!

By: Sampson

Sampson — Fri, 03 Apr 2009 16:03:02 +0000

I think people considering changing/breaking their existing mortgage really need to do their own calculations and not simply ‘listen to what the bank says’. Sure you save money with a blend and extend, but if you can afford the break penalty, you’ll very likely be better off.

Inevitably, all scenarios I’ve gone through for changing our 5 year fixed (5.79% – 1.3 years in) – paying break penalty, paying a ‘renewal penalty’ (i.e. break but stay with same lender and full mortgage amount is at lower rate) – you come out on top if you can pay the penalty (don’t blend and extend) – and then use the additional cash flow to pay down principle amounts.

With this strategy, you’ll pay down the mortgage sooner – and you have the added flexibility of lower minimum payments if needed.

By: erin

erin — Fri, 27 Mar 2009 05:01:38 +0000

I had to break our morgage a month ago, and put our loans on the morgage. The penilties were high (5,000), but we were going to almost break even or perhaps even save some money by getting the lower rate. Thank goodness, because now all of our payments are lower, and hopefully one day soon we can start aggressively paying down the morgage again.

By: dinah

dinah — Wed, 25 Mar 2009 15:33:04 +0000

Ter–I have started a Gail Club for Winnipeg/Manitoba. Check it out and maybe we can help!

I’m so sorry for your loss.

By: Marie

Marie — Wed, 25 Mar 2009 13:43:29 +0000

ter:
Sorry for your loss. Check the Gail Clubs link and see if there is one in your area. Maybe someone can help you with the money part.
Good luck!

By: an ostrich named sam

an ostrich named sam — Wed, 25 Mar 2009 11:09:24 +0000

I’m closing my new mortgage on May 1. I’ve chose a mortgage that 1.) lets me increase my payments by 25% a year, plus put a lump sum payment of 20% of the principal once a year too. If I just put the 20% down my mortgage will be paid off in 8 years, but if I increase my payments and put money down it will be even less than that. So I’m going to bite the bullet and increase my payments ASAP and hopefully own my house outright in 5 or 6 years…

By: ter

ter — Wed, 25 Mar 2009 05:43:49 +0000

Gail, I absolutely love your show. While I don’t understand all the financial aspects of it, I love the concept and how you explain to people to make things work. I more or less let my husband deal with the finances, paid a bill when he told me to, etc, that’s about it, but he died in November and now I’m confused about everything. I don’t know what’s what and just trying to look at all the paperwork is depressing especially since it makes no sense to my little non-mathematical brain. I’m in Manitoba, and I know you mostly air your show out in Vancouver. Not that I’m television material or anything, but if you’re ever in Manitoba, I hope I hear about it!

By: Kristina

Kristina — Wed, 25 Mar 2009 02:30:12 +0000

I’m calling the bank tomorrow to try my luck. I have nothing to lose.

Even if I eat the three month penalty, I will probably be ahead in the long term. For those that are interested to see if it is worthwhile to renegociate their mortgage, check out industry canada’s morgage saving calculator at http://www.ic.gc.ca/eic/site/oca-bc.nsf/eng/ca01817.html . A three month interest penalty could save me $12,000 for a few days of work.

By: Yvonne

Yvonne — Tue, 24 Mar 2009 20:57:55 +0000

Catherine,

Yep, paying out a mortgage through a loc or heloc is fairly common and sometimes is the best recommendation depending on rates…having your loc at prime right now is great…more of your payment will hit the principal instead of the interest fast tracking the payout of your debt!

By: Catherin42

Catherin42 — Tue, 24 Mar 2009 20:37:41 +0000

Thanks Geoff for your input, I was a little nervous at the time that we did this, but I loved the idea that we could increase our payments and add extra payments when we had had extra monies.
My husband and I are are really keen on get our mortgage paid down as fast as possible. I’ve never heard of anyone putting their mortgage on their LOC, before we did. Is this common?

By: Yvonne

Yvonne — Tue, 24 Mar 2009 20:18:44 +0000

I am a lender/investor for a bank and we do blend and extend all the time…what you are blending is the Interest Rate Differential (IRD) with the new lower rate…I do still discount the new rate so it usually works out better for the client BUT, you do have to be careful with the rates going so low now sometimes the IRD is so high that even with the discount on the rate the blend and extend would not be lower than your current rate…but, your advisor will let you know this…I check this out for a least one client per day these days…it only takes moments and as advisors we have no problems doing it…no need to beg plead or threaten at all..lol…

By: Geoff

Geoff — Tue, 24 Mar 2009 18:46:33 +0000

PS for the rest of our mortgage’s hopefully shortlife (12 – 15 years) hopefully, we’ll go variable unless I have another worlds in collision moment in 2012.