Should you be refinancing your mortgage?

Should you be refinancing your mortgage?

Is refinancing the right move for you? Let’s find out. 
⁠We sat down with mortgage experts, Thrive Mortage, to give you all the answers and insights you need to know

 

What is Loan refinancing?

Loan Refinancing is the process of taking out a new loan to pay off one or more outstanding loans. Homeowners typically refinance in order to receive lower interest rates which can result in lower monthly mortgage payments, and/or can allow homeowners to pay down more principal over the mortgage term. 

 

Penalty Fee 

Remember that mortgage contract you signed and filed away under your bed? Yeah that one –  let’s dig that up and take a look at what your penalty ($) to break your mortgage is set to.  

 

In the scenarios below, we are using $13,000 as the penalty to break the mortgage (this is a common figure). 

 

COUPLE 1

 

photo: nicole mofrad photography

 

A trendy lolo couple purchased their home in 2018 and locked into a 5-year fixed rate at 2.99% (this was typical for that time). The principal (balance) they owe on their mortgage today sits at $648,000. Mortgage rates today are 1.80% (record low). It would cost this couple $13,000 to break their current mortgage which is locked in at 2.99%. (this is starting to sound like high school math, but stay with us!)

 

Lets dive into what their payments and principal would look like if they stay locked into their 2.99% versus if they break their mortgage, eat the $13,000 penalty and live their best lolo life with their new shiny mortgage rate at 1.80% .

 

Existing rate 2.99% – principal is $648,000

Monthly pmts (mortgage payments): $2,722.06

Total interest paid over 5 years (5 years of paying interest to the bank on your mortgage at 2.99%): $91,137.27

Mortgage balance after 5 years (what you still owe the bank): $575,813.67

 

New reduced rate 1.80%(because we refinanced)- Principal $661,000 (we added on that $13,000 penalty to the $648,000 original mortgage amt)

Monthly Pmts: 2,375.42

Total interest paid over 5 years (5 years of paying interest to the bank on your mortgage at 1.80%): $55,489.80

Mortgage balance after 5 years (what you still owe the bank): $573,964.80

Total monthly cash this couple is saving – if they refinance, working the $13,000 penalty into their new mortgage at 1.80%  – extra $346.64 cash in their pocket.

 

At the end of the 5 year mortgage term, the principal is paid down an extra $1,849.47 with the 1.80% mortgage rate in comparison to 2.99%. This is an extra $1,849.47 for you. Yes – you! 

 

The trendy Lolo couple is pleased as this extra $346.64 will be used for date nights at local restaurants, and breweries

 

 

COUPLE 2 

 

photo: nicole mofrad photography

 

This couple are in a Central Lonsdale townhouse, and are trying to save every penny to own that piece of dirt of their dreams (detached property). They have the exact same numbers as couple 1 to work with and the exact same penalty (what a coincidence). After sitting down with their Thrive Mortgage Advisor, they also decided that refinancing to the 1.80% is the right call; HOWEVER, they would rather take that extra $346.64 a month in savings and apply it to their mortgage to pay down more principal on their mortgage.

 

Enter the super saver approach to refinancing. 

 

Existing rate 2.99% – principal is $648,000

Monthly pmts (mortgage payments): $2,722.06

Total interest paid over 5 years (5 years of paying interest to the bank on your mortgage at 2.99%): $91,137.27

Mortgage balance after 5 years (what you still owe the bank): $575,813.67

 

New reduced rate 1.80% (because we refinanced) – Principal $661,000 (we worked  that $13,000 penalty into the $648,000 original mortgage amt)

Monthly Pmts: $2,722.06

Total interest paid over 5 years (5 years of paying interest to the bank on your mortgage at 1.80%): $54,545.43

Mortgage balance after 5 years (what you still owe the bank): $552,221.83

Putting that $346.64 extra cash towards your mortgage each month worked your principal down to $552,221.83.

 

 

The lolo condo couple is living their best life with extra cash and their mortgage principal is still paid down an additional $1,849.47 compared to if they did nothing and didn’t refinance.

 

The Central Lonsdale townhouse couple is in super saver mode, and by refinancing they are able to have their principal paid down to $552,221.83 after the 5 year term while their monthly pmts stayed the same. The additional principal on their mortgage they were able to pay down after 5 years is $23,591.84 just by refinancing to 1.80%.

 

 

We’ve collaborated with Thrive Mortgage to bring our clients a custom plan that breaks down if refinancing is right for your specific scenario, and how to work towards your next home goals. 

 

Planning ahead and having a custom plan/timeline is always key – a tailored mortgage spreadsheet using your specific rates and penalties paired with a real estate timeline of what your real estate goals are go hand in hand. Contact us to get your custom tailored plan organized with Live The Shore Realtors Carmel Frandsen and Marco Pontillo and Thrive Mortgage experts.

 

Contact us: click here

Contact Thrive mortgages: click here

 

A trendy Lower Lonsdale condo with a view, a modern Lynn Valley townhouse with a grassy backyard, or a charming Edgemont home at the end of the block – whatever your next home looks like, let’s get you there.

 

About us: click here

 

Photography: @nmofradphotography
Illustrations: @zainabmughalarts

Join The Discussion

Compare listings

Compare