Blend your mortgage to improve your rate.
Quite a few people are wondering how to lower their current mortgage costs.
Generally, the mortgage penalties you incur to break your mortgage are set up as the greater of three months interest or the value of your Interest Rate Differential. If you’re going to break your mortgage, try and do it when your mortgage is sitting in the “sweet spot”– this is when your rate is not high enough to trigger IRD and thus you’re only required to pay the three months interest penalty.
Unfortunately, the sweet spot rarely comes at a convenient time. Also, most people will have trouble ever fitting into this scenario if their rate is over 4 %. If this is your situation, speak with your low mortgage rate planner about a blended mortgage. There are two options that most banks will offer:
Blend and Extend or Blend to Term
- Under a Blend and Extend option, the bank will give you a brand new term at the current rate but ‘blend’ in your penalty to your new rate.
- The Blend to Term option is the same idea but your term remains as is. For example, you would end up with the same two years left but at a lower rate with the penalty blended in.
If you are in that “sweet spot” a good Canadian mortgage broker will show you calculations on just how much you can save by breaking your best mortgage rate. If you’re subject to an IRD, a good planner will go over what blended options are available to you and take into account your time frame and overall goal to help you select the option that’s the best fit.