Mark Carolin

We’ve all heard about the housing crisis that faces the country, in response to this crisis the banks have been consistently lowering interest rates.  This has prompted many homeowners to consider refinancing their mortgage for a low mortgage rate.  Refinance is the process of breaking your current mortgage and replacing it with a new mortgage.  In many situations, this can be extremely beneficial by refinancing to a lower interest rate homeowners can save hundreds of dollars every month.  However, we have seen a new phenomenon with the fluctuation in the market, some people are experiencing higher than ever mortgage penalties.

Before you consider a mortgage refinance in Ontario there are few things you should be cautious of, the first and most important is your penalty.  Many people are aware that if they break their mortgage they will incur a penalty, what they don’t realize is how high the penalty can actually get.  In the past six months, mortgage brokers have been seeing penalties that have reached into the tens of thousands of dollars.  You may be asking yourself, why would the penalties be so high all of a sudden?

The answer is complicated, but a simple explanation is, most banks charge a standard three-month interest penalty for breaking a mortgage, however, some banks charge an interest rates differential.  This is a calculation that the bank uses that takes the difference in the interest rate from the day you signed your mortgage to today, they take the difference and charge that for the remainder of your term.  Some banks will actually use the bond market to calculate that difference, and it is the fluctuations in the bond market that have caused the recent problems.  Therefore, before you consider a low mortgage rate refinance make sure that your mortgage specialist first inquires about your penalty.

A professional mortgage broker will be familiar with the bank that holds your mortgage, and should be able to give you a rough estimate of what your penalty will be.  Your mortgage specialist will be able to calculate whether it’s advantageous for you to refinance your mortgage.  In many cases even with the penalty, it is still worth refinancing your mortgage because the savings are so high.

The other thing to consider about refinancing a mortgage is the value of your property.  Unfortunately, because of the decline in the housing market in the United States, we have experienced a ripple effect here in Canada as well. Some areas of Canada have seen significant decreases in the value of their properties.  The problem with that is that banks will not lend more than the value of the house, so when homeowners try to refinance their mortgage they discover that their house is now worth less than their original mortgage.

These occurrences are more prominent in the western provinces such as British Columbia and Alberta.  The reason these provinces have experienced a larger decline in house values is because they experienced a much faster increase in house values, so in these provinces it can be more difficult to refinance.  In Ontario, the house appreciation over the past few years has been more modest so if you are considering a refinance in Ancaster, Burlington, Brantford, Hamilton, Oakville, Mississauga, or any other city in the GTA you will be happy to know that the house values in these cities have remained strong.

The good news is because of the fluctuations in the housing market in Canada the banks are offering some amazing interest rates, so even with their penalties many homeowners are saving thousands of dollars by refinancing.  It is important when considering a low mortgage rate refinance you utilize the services of a professional mortgage broker.  A mortgage broker will offer you an unbiased opinion about whether it’s actually in your best interest to refinance your mortgage, and will advise you on such things as mortgage penalties, and refinancing.  A mortgage broker will also find you the bank that is offering the best mortgage products and interest rates at this time.