My mortgage wasn’t up for renewal until next year, but I thought by that time, interest rates would be up again, so I did an early renewal this week with the blend and extend. My old rate was 4.2% for a 5yr fixed term. Now it’s a blended rate of 3.76% for a 5 yr fixed term and I don’t pay a cent in penalties.

This option would be good for those who don’t expect moving or breaking their mortgage anytime soon. Just thought this would be useful for some people to know.

I bought a house in june 2008 (just one year ago). At the time we got a pretty decent rate, at 5.39% for a five year loan on a 40 year year term with Scotia (through a mortgage broker) (which, by the magic of bi-weekly paiments, should be fully paid in 33 years if we make no additional). Seeing the recent very low rates, I was curious if my rate could be made lower, so i called my banker. Since I read your column, I was not surprise to learn that to get the lowest rate possible, it would have to pay me 17000$ in interest rates differential penalties. The banker suggested that by reapplying for a new 5 year, he could “mix” my current rate with the current low rate prorated on the number of months left on the original contract (and maybe some other factors, I’m not sure), I could get a lower rate with no penalties to pay.

After he ran his numbers, I got a lower rate of about 5.17%, which translates into about a 20$ lower payment each two weeks.

That is not a whole lot, but I’ve instructed him to set the new payment amount to the same amount I used to pay, which means that I will pay my mortgage 2 years sooner…

I am satisfied, even though I didn’t get the killer rates they advertise, since I will still profit from the current low rates and end up paying less interest in the end (and finish paying the mortgage sooner).

Keep up your good work, you are always interesting to read.

Great post, Gail, as always.

Great post, Gail!

If you’re concerned about paying more interest, you can always save a bunch by paying down some extra principle!

I really feel that these people who wildly cast about for the best mortgage rate to their own detriment somehow feel that “others” are getting a better deal then they were. If they considered their rate in the context of historical interest rates as other posters here have mentioned, they would probably feel a lot wealthier.

Personally, I’m on a variable rate and I love it. Our credit union allowed us to set our biweekly payment as though we were paying at a 2% higher rate. This way, if rates go up, our payment will not increase unless rates go screaming up by more than 2% (plenty of peace of mind for me). In the meantime, the extra amount we are paying biweekly goes directly onto the principal. We also bought a much smaller house than the banks told us we could afford. My spouse and I are both very risk tolerant though so I can see that this is not for everybody.

I gnash my teeth every time my risk-taking buddy brags out the $10 PER MONTH interest on his mortgage because he locked in his bank at prime minus 0.5% for five years.

Then I stick my tongue out at him and tell him even though my fixed rate is 4.5%, I’ll be mortgage-free in another 13 semi-monthly payments. And the total interest on my mortgage will be significantly less than his because he had to borrow more and will take more than twice as long to pay it off.

I too have been fretting about the low rates and figuring if the penalties would be worth it. I even talked to a lender. In 5 years the interest saved minus the penalty paid would leave us about $2000 closer to totally paid off. I am not sure it would be worth all the paperwork. Normally I would be all over that $2000 but not after what you have said here.

I am not fond of the unkown, so we got a TEN year rate when we bought our place. I was FINE with the contract at 6.25% and when the mortgage guys called and offered a blended rate at just 5.5% I was delighted to take it (a few years back). The next renewal is in July of 2012, three more years to go….

Who knows what that 3 years will bring and how things may change for interest rates or for my financial situation! (Growing up, my family lost their house when the interest rates hit the double digits in the 80’s). BUT I know right now with my current contract EXACTLY how much I will owe by then, and it’s a smaller amount than the loan on a new car.

That gives me peace of mind. Our monthly payment is manageable, even if the rates skyrocket, we are okay, we are not over extended. The roof is over our head and we are not suffering daily to keep it there, and that’s the point isn’t it? More so than feeling “gouged” seeing current rates so low?

Thanks for straightening me around Gail!

Interest is very simple: if you want to pay less of it, then pay off more of your principal, sooner. If that couple had put the $23,000 they spent on penalties against their mortgage, they’d shorten by 4+ years and reduce the interest by almost $40,000 (assuming they continued the same payment schedule).

I have also heard of the high interest rates in the 80’s – how in the world did people manage.