Time to Renegotiate Your Mortgage

Interest rates are at an all time low and if you are locked into a fixed mortgage then now is the time to renegotiate.

Two options to choose from:

Option One

Keep your mortgage at your current amount and pay less

Option Two

Take out equity and pay the same or slightly higher.

Here are how the two options look like:

Option One - Keep Mortgage at Current Amount

A $320,000 mortgage at a fixed rate of 5% would equate to $1,707 (rough estimate) per month. If you renegotiate to prime 2.25% then your rate would equate to $1,223. That is $500 monthly in savings and your interest payments and length of the mortgage will go down.

The caveat with this option is that you will need to pay a penalty but even with a $10-15,000 penalty you will still see a savings and your interest payments and amortization will go down.

And of course you will ask, how about if the rates go up. Rates will not go up as quickly as people think, for the interim (roughly the next 6 months or so) rates will not change much as we are not out of our recession yet and any changes to the prime will stunt growth. And you can always lock in within 1 week.

Option Two - Take out Equity

If your home has gone up in value, you can keep your current monthly payment and take out equity. For one client it looked like this $318,000 original mortgage, house went up in value to $525,000, they took out $75,000 in equity and the mortgage climb to $393,000. The good news because the interest rate went down they ended up paying the same monthly figure and had $75,000 in their pocket!

Again, because you are paying a lower interest rate your long term interest payments will go down and so will the life of your mortgage.

There are of course costs to this option as well, however if you do an increase and blend, there are no cancellation fees only lawyers and bank fees which usually amount to $800-$1,000 (approx.) and get taken off the $75,000.

Whatever your option, go to your bank or ask your mortgage broker. In the long run you will end up saving money.

Do not take out more than you can pay on a monthly basis today and long term! Your bank or broker will help you decide your comfort level and what you can pay monthly.

As always we are here to help centssavvy.com