Don't wait for renewal: How to rewrite your mortgage without breaking it
By Christopher Liew
Many homeowners believe they must wait until their mortgage term ends to renegotiate, but that is not always the case. Rewriting your mortgage early can save you thousands of dollars, but it requires careful planning to avoid costly penalties. Here is how to approach a mortgage rewrite without breaking the bank.
What is a mortgage rewrite?
A mortgage rewrite, also known as a mortgage refinance or renegotiation, involves changing the terms of your existing mortgage before the end of its term. This can include lowering the interest rate, adjusting the amortization period, or switching from a variable to a fixed rate. However, lenders often charge prepayment penalties for breaking the original contract.
When does it make sense?
Rewriting your mortgage is most beneficial when interest rates have dropped significantly since you signed your current deal. For example, if you locked in at 5% and rates have fallen to 3%, the savings on interest may outweigh the penalty. Additionally, if your financial situation has improved, you might qualify for a better rate or want to shorten your amortization to build equity faster.
How to avoid penalties
Some lenders allow a "blend and extend" option, where you blend your current rate with the new lower rate and extend the term. This often avoids penalties. Another strategy is to negotiate with your current lender, as they may waive fees to keep your business. Always ask about penalty waivers or reduced fees before committing.
Steps to rewrite your mortgage
- Check your current mortgage contract for prepayment penalty clauses.
- Compare current interest rates with your existing rate to estimate savings.
- Contact your lender to discuss options, including blend and extend.
- Get quotes from other lenders, as switching may offer better terms.
- Calculate the net benefit after accounting for penalties and legal fees.
Expert advice
Licensed mortgage agent Jennine Yool recommends acting when rates are favorable and your financial standing is strong. "Don't wait for renewal if you can save significantly now," she says. "But always run the numbers to ensure the savings exceed the costs."
Rewriting your mortgage can be a smart financial move, but it requires due diligence. By understanding the penalties and exploring all options, you can secure better terms without unnecessary expense.
