Is your mortgage locked in...try a blend and extend
If you are locked into a long term fixed rate mortgage and would like to take advantage of rates that are currently much lower, you could ask your lender for a "blend and extend"? Refinancing your mortgage, well before your renewal date, is not an option, because the interest rate differential penalty would be staggering.
What I am talking about is a compromise solution that allows both borrower and lender to win...at least a little bit.
For example, if you took out a mortgage 2 years ago, with a 5 year term at 5 percent annual interest and today's rate is 4 percent, you could ask for an early renewal. If the bank is allowed to do this, they will certainly not purposely lose a guaranteed higher rate in favour of a lower rate. Instead, they will offer you an option to average the 2 rates together and then renew for a new 5 year term.
Why would the bank allow you to do this? Remember, currently they are lending the 5 year mortgages at 4% so by taking your existing rate and reducing your interest, they now extend their earnings from their investment with you and will benefit from a longer earning cycle.
You benefit by having a lower rate and a lower payment with the same principal reduction and schedule as before. If your strategy is a long term ownership of the property, this proposal works well.
Not all lenders will do this, because sometimes the way a mortgage is funded will dictate the lender's flexibility. You can get your broker's advice before you talk to your lender, but is usually fairly simple to approach your existing lender to discuss the option directly.
Have you experienced a Blend and Extend...share your stories
