Renegotiate Your Mortgage

"Is there still time to strike while interest rates are hot?"

The question should be: "Why haven't you renegotiated your mortgage yet?"

Interest rates have been at all-time lows for the past two years. With rumblings of rate increases, time may be running out.

Apathy is the enemy. A few months from now, will you look back on today's interest rates and kick yourself for not renegotiating your mortgage while rates were still hot?

Seize the day! Get the facts and do the calculations so you can decide whether renegotiating now will save you money. If it will, then act. If not, you have the satisfaction of knowing that you made an informed decision - and you'll be ready if rates go down again.

What should you do to decide?

Renegotiating or refinancing your mortgage really means paying off your mortgage and arranging a new one. Each mortgage contract is different and the differences are important. Verify that renegotiation is possible under the terms of your mortgage and then gather the facts you'll need for your decision:

The cost of saving money

Find out the penalty for refinancing. Mortgages that are fully open can be prepaid without penalty. The rest carry penalties. Don't abandon the project when you hear your penalty is three months' interest or what may be worse, the interest differential - an amount equivalent to the interest the lender will lose by giving you a lower rate. Ask your lender to translate the penalty into dollars. Also find out what administration fees or other expenses are involved. Try negotiating to decrease these costs - you don't get if you don't ask.

The savings

Renegotiating is worthwhile only if what you save is more than the cost of refinancing. You'll need the lender's calculation of the mortgage's outstanding balance for this step. If your current mortgage rate is 2 per cent or more above the current rate, you may save even after paying a penalty. Computers make mortgage calculations relatively easy (click here for our mortgage calculator). Your lender or your financial adviser can also help you with the number crunching. The latter may charge a fee for the service.

Renegotiation cautions

A short period before renewal, you can renegotiate the mortgage without penalty. At renewal, the mortgage can be paid off and refinanced without any penalty.
Before you begin renegotiation, be sure your income -- or the combined income of you and your spouse -- has not eroded since the mortgage was arranged, leaving you unable to qualify for the new renegotiated mortgage.
Always get everything in writing -- including printouts of calculations and projections.