Breaking Your First Mortgage To Refinance – Should You Do It?

All too often mortgagors continue to pay their mortgages (if they have more than one) because they are afraid of breaking their mortgage and refinancing because they are afraid of losing the low interest rate of their first mortgage. However, by doing a little bit of math and digging a little into some prospective refinancing scenarios, they may find it beneficial to break their current mortgage, pay the penalty fee, and refinance.

If you are a mortgagor and aren’t sure about refinancing, then this article is for you. We will look at what refinancing entails, take a look at an example situation to really break it down for you, and talk about how you can refinance your mortgage easily. Let’s get started.

What is refinancing?
Put into simple terms, refinancing your mortgage means paying off what you have and replacing it with a new loan. It is, essentially, a way to alter the terms of your mortgage by replacing it with a new one that is a better financial fit. This can look different for different mortgages.

It might involve lower interest rates, a payment schedule that is more manageable, a shorter loan term, or consolidating multiple mortgages. Whatever it may look like, refinancing can help your mortgage and the goal of owning your home outright become more manageable and achievable.

Let’s look at an example.
Let’s say your property is valued at $1,000,000. Your first mortgage is $550,000 and your second mortgage is $150,000 (totaling $700,000). The interest rate on your first mortgage is 2.49% and the second is 12.99%.

Now, let’s take a look at the current combine rate:
$550,000/$700,000 = 78.57% (So your first mortgage represents 78.57% of the total mortgage.)
$150,000/$700,000 = 21.43% (So your second mortgage represents 21.43% of your total mortgage.)

78.57% * 2.49% = 1.96%
21.42% * 12.99% = 2.78%

Total combined rate = 4.56%

In this case, the mortgagor should consider breaking the mortgage, depending on the amount of the penalty fee for pre-paying. Something to keep in mind, though, is that if the mortgagor keeps the status quo by keeping both mortgages, there will more than likely be a renewal cost associated with renewing the second mortgage. Also second mortgages are typically interest only, therefore at the end of the terms the mortgagor hasn’t paid any principal back. For all these reasons it may be smart to consider breaking the first mortgage and refinancing. Alternative lenders are often a solid option when mortgagors need to combine the two mortgages.

How can you refinance your mortgage?
Easyhouseloan.ca wants to work with you to get you the best mortgage terms possible, including the lowest interest rates. Their knowledgeable professionals will work directly with you to assess your situation and see if breaking your current mortgage and refinancing is the way to go. Get in touch with them today and become one step closer to owning your home flat out.