COVID-19 Markets: Is It Time To Trade In Your Mortgage?

Are you now considering trading in your current mortgage for a better rate?

Borrowers usually refinance their mortgage to consolidate debt or access the equity in their home. Yet, during times in the market when interest rates plunge like the situation we are now experiencing with COVID-19 and the global economy, borrowers may likely seek the opportunity to trade their current mortgage rate for a lower one to save money.

Depending on what the pre-payment penalty is and the difference between the current interest rate and new interest rate, it may be an excellent opportunity to trade mortgage rates, which can save tens of thousands of dollars within the next mortgage term, and of course, over the life of any mortgage.

Let's look at what trading a $400,000 mortgage at 3.99 per cent for the same balance at 2.59 per cent means in terms of total savings.

Scenario A

Current Mortgage Balance $400,000
Interest Rate: 3.99%
Amortization Period: 25 years
Monthly Payment: $2,101.91
Total Interest Payments in 3 years: $45,797.95

Scenario B

Mortgage Balance $400,000
Traded Interest Rate: 2.59%
Amortization Period: 25 years
Monthly Payment: $1,809.34
Total Interest Payments in 3 Years: $34,213.53

In the above scenarios, it is clear that a borrower saves a lot of money in two different ways. First, their monthly payment is reduced by $292.57 and second, they save over $11,583.47 in interest payments in just three years.

Of course, total interest savings may fluctuate depending on the length of time remaining in the mortgage term and the mortgage balance; however, the fact remains that trading for a lower interest rate can have significant financial advantages. Also, a borrower may end up with a lower rate mortgage for an extra two years, if interest rates rise after their original mortgage matures, which would save them an additional two years of extra interest payments. This could easily be more than $10,000 worth of savings. In this case, at the end of the five years, the total savings could be approximately $21,000 or more!

If you're contemplating refinancing today by trading your current interest rate for a lower one, you need to determine your pre-payment penalty and then how much money refinancing your mortgage actually saves you.

I usually complete this activity with my clients over the phone, so it makes "running the numbers" a convenient experience.

Are you interested in learning how much you can save by refinancing your mortgage for a lower rate?

Please don't hesitate to call or write.

Sarah A. Colucci
Mortgage Agent
Mortgage Edge, Broker 10680
Direct: (647) 773-4849
Email: [email protected]

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