Is the time right for a re-finance?

By David Rees, TD Canada Trust

If you have already bought a home within the last 2 years, or if you have done a re-finance in the last 2 years, you may be in a position to potentially save tens of thousands of dollars. If you chose to go with a VARIABLE rate mortgage in the past 2 years, you are likely in a mortgage that has very little, if any, discount on it. In fact, you may even be in a Variable rate mortgage that is Prime PLUS a certain percent.

For example, about 1 ½ years ago, Variable rate mortgages were at Prime PLUS .80%. That would mean that today, your current Variable rate mortgage is 3.80% (Prime currently being 3%).

As the global economy began to turn around and borrowing flowed more readily, the discounts for Variable rate mortgages deepened and Prime MINUS mortgages came back into the market. Today, it’s possible to obtain a Variable rate mortgage at Prime MINUS .70% – that’s a full 1.5% difference compared to 1 ½ years ago!

What could this potentially mean in dollars? Well, on a mortgage of $300,000, based on Prime PLUS .80%, you would pay approximately $44,000 in interest over the next 4 years (assuming your mortgage funded 1 year ago, and thus, have 4 years left on a 5 year term).

On that same mortgage, based on today’s Variable rate of Prime MINUS .70%, you would pay approximately $28,000 in interest over the next 4 years. That’s a savings of $16,000 in interest. Additionally, not only would you be saving money every month in interest, but you would also lower your monthly payment.

While it’s true that there will likely be a penalty to get out of your existing mortgage, on a Variable interest rate mortgage, it is typically only a 3 month’s interest charge. So, again, using the example of a $300,000 mortgage, 3 months interest would be approximately $3000 – so you would still end up saving a significant amount of money.

If you are in a FIXED rate mortgage, you are likely to face a penalty called the ‘Interest Rate Differential’ which can be a considerable amount, in which case it may not be worth while to refinance. But, if you are in Variable rate mortgage, it would be very prudent to consider further investigating your options on re-financing and talk to your lender – it will be worth your while.

David Rees is a Mortgage Specialist with TD Canada Trust. He has been in the financial services industry since 2005. He specializes in all residential real-estate secured transactions, including new home (project site) purchases, re-sale home purchases, re-finances, equity take outs and investment properties. If you have any mortgage related questions, please feel free to contact David any time @ 778.217.0624 or