DLC on coping with high-rate 10-year fixed mortgages

The growing number of consumers opting for mortgages with longer terms has given rise to a peculiar Catch-22: being stuck in 10-year fixed mortgage terms with higher interest rates, with no recourse or breathing room.

Fortunately, a Dominion Lending Centres agent assured that home owners who are locked into these mortgages still have options.

In a March 3 piece published by DLC, accredited mortgage professional Pauline Tonkin outlined the case of couple “Dan” and “Anita”, who own a home and have refinanced their mortgage into a 10-year team 8 years prior, and who are now looking to unify their mortgage and their high-interest credit cards into one lower monthly bill.

“The news was painting a picture of doom and they wanted to take advantage of the ‘record low’ rate of 5.25% for 10 years. Over the past few years they have watched the shorter term rates for 5 year term mortgages continue to drop to under 3% and they feel they may have made a poor decision,” Tonkin recounted.

“The monthly payments are $1,644 which they can afford but the potential of payments at under 3% for the remaining 5 years would be $1,304 (based on the remaining amortization) which is hard to pass on.”

After consulting with a broker, the couple found out that prematurely ending a 10-year mortgage after 5 years only amounts to 3 months’ worth of interest—in their case, $1,200, plus around $600 for legal fees.

“Dan and Anita were stunned they had missed this in the fine print of their mortgage agreement. And to top it off this policy is determined by law and not by the lender,” Tonkin wrote. “By increasing the payment by 20% – which was still lower than what they were paying before and paying bi-weekly instead of monthly, they lowered their interest costs by $20,000 over the next 5 years and reduced their amortization from 25 years to 12 years.”

“The moral of this story is, if you are stuck in a high rate 10 year fixed mortgage and you are close to the 5 year mark, you should talk with your [broker] and see what options you have to save yourself some money on your mortgage,” Tonkin concluded.

MBN

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