Benefits of Refinancing/ Switching a Mortgage with a Mortgage Agent


I recently had the pleasure of helping out a client looking to refinance, who posed a variety of challanges. First challenge was getting the best variable interest rate possible for this extremely well qualified buyer. Next was to make sure he did not pay any legal fees, appraisal costs, or title insurance costs to save around $2,000 in closing/ transfer costs. Also, prepayment options of 20/20 per year. Finally he is looking at selling and buying a larger more expensive home in the next few months, so we needed a portability option for the future.

This deal left a limited amount of lenders who could finance the deal and do a no-fee refinance and save a few thousand dollars. He had 2.5 years left in his current mortgage term with a balance of around $277,000 at a rate of 4.65% and his payout penalty was around $3,000. At current interest rates he will save approximately $13,000 in interest over that period now.

However, because when you renew your mortgage lenders often try to give you the same interest rate as before and rates could be up by 2013, I also did a 5 year difference. In 5 years he would save around $20,000!!!!!!!!

Here is how those numbers brake down over 5 years in interest payments with weekly payments and approximate figures:

                     2.25% (-.75 P)        2.30% (-.70 P)             DIFFERENCE

Year 1             $6,091                  $6,227                           $136

Year 2            $5,874                   $6,006                         $132

Year 3           $5,653                     $5,780                        $127

Year 4           $5,426                     $5,549                        $123

Year 5           $5,194                     $5,313                         $119

TOTAL         $28,238                 $28,875                     $637

1/2 TOTAL  $14,791                   $15,023                     $332

Here are the interest payments for 5 years on a 25 year amortization at 4.65%, what the client was paying prior:

Year 1         $12,567

Year 2        $12,206

Year 3        $11,829

Year 4        $11,433

Year 5        $11,019

TOTAL:     $48,054

1/2 Total:  $30,693

SHOW ME THE MONEY:

$30,693                       What he would have paid over 2.5 years at current rate.

$15,023                        What he will pay under current conditions at variable.

$15,670                         Gross Savings

($3,000)                      Early Pay Out Penalty

$2,000                          No Fee Refinance Savings

$14,670                         Approximate Net Savings for Refinancing

He also asked how would this affect his payment, and if there would be any extra interest payments if rates rose to say 8.25% and 8.30%. Here is how they broke down on a 5 year basis:

                                 8.25%                 8.30%               DIFFERENCE

Year 1                    $22,172              $22,305            $133

Year 2                    $21,677              $21,808            $131

Year 3                    $21,141               $21,270            $129

Year 4                    $20,559             $20,686            $127

Year 5                     $19,929              $20,052          $123

TOTAL                   $105,478            $106,121        $643

As you can see the difference between the (P-.70%) and (P-.75%) is again $643 or close to the original $637. This happens because you are only paying interest on principal so the rate can be 120.25% to 120.30% and it will still be around $640. So this leaves him with a savings of $14,000. Very smart guy, that is a good weeks work, when from application to closing he had to spent a maximum 5 hours.

With his great credit and equity we had an option between best rate or no-fee refinance. Difference from best rate to no-fee refinance rate was .05% so over 2.5 years would be $330 approximately, however he would save a minimum $750+ HST on lawyer fee and a day off work, possibly $400 for an appraisal, $300 or so for Title Insurance.

Now we look at mortgage portability. When he sells his home and buys a new one he can transfer his current mortgage and rate to a new home if interest rates are in his favor. His new home can be more expensive as long as he can financially afford it and the lender allows it. He can also add a spouse to the ownership/ or transfer it to them. If not he can sell, brake the mortgage contract, pay a small fee and pull out his equity.

My client is even smarter in paying off his mortgage he is going to keep paying the same amount he did with his previous mortgage, and pay off the balance even soon. Should be mortgage free in 15 years opposed to 25.

To find out how to pay your mortgage off faster, refinance, the more specific numbers send me an email at wpianka@tmacc.com.

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About wojciechpianka

After a few years of studying English and History at the University of Toronto, I decided to transfer to Ryerson University and pursue a Bachelor of Commerce degree. While studying, I worked various jobs where I acquired many skills. Starting as a teller at Scotiabank, I moved on to being a manager of a restaurant, admin staff at a medical clinic, a sales agent for INGDirect and a manager at One King West Hotel. While all these jobs challenged me, I never felt my potential being utilized. Finally in 2008, I completed the Ontario Mortgage Agent Course and signed up with The Mortgage Alliance Company of Canada. This was a great decision, as it allowed me to use the skills I learned working to help people achieve their real estate and financial goals. My passion for real estate and numbers has lead me to becoming a mortgage agent. Growing up in New York City, I always had a fascination of historic buildings and skyscrapers. At 21, I bought my 1st property and have been investing in real estate ever since. I firmly believe thru steady, safe and conservative investing a one can obtain long term financial wealth. One day, I hope to develop the same buildings I help clients purchase.
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