Like the look of a lower mortgage rate? Avoid the penalty to break your current mortgage and get a “blended rate”

Dara Fahy is a leading mortgage planner with The Mortgage Centre Citywide in British Columbia. You can view his BC mortgage rates on RateHub.ca.

Given the current low rate environment, many people are inquiring about how to lower their current mortgage costs. If you’re one of the many that took a fixed rate back in 2008 or 2009, you are likely in the range of 4 to 5% or even higher and you’re stuck with it for one or two more years. This is frustrating when current rates are being offered as low as 3.29% for a new 5-year fixed term.

Typically, the mortgage penalties you incur to break your mortgage are set up as the greater of three months interest or Interest Rate Differential (essentially, the difference between your mortgage rate and the current rate your bank is offering for the same term you have remaining). This is in place to avoid people constantly breaking existing mortgages to go to a better rate and this IRD penalty will typically negate any savings from doing so. However, there is what I like to call a “sweet spot”, where your rate is not high enough to trigger IRD and only three months interest penalty applies. At the time I am writing this, I find that rate to be around 3.89%.
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