Early Mortgage Renewal May Beat Rising Interest Rates
I called our bank this week and talked to my favourite person there about our mortgages. Shudder. Shake.
I’ll tell you straight up that I’m not much of a risk taker. I do however try to undertake thoughtful analysis in decision making especially as it applies to money. In addition to our home, my hubby and I own some other properties with mortgages and so, I’ve been thinking about interest rates lately.
I don’t have a crystal ball of course nor am I giving anyone else advice but, my sense is that by the time our mortgages come due next year and in 2012, interest rates will be higher. Quite possibly, they’ll be significantly higher. With the huge amounts of government spending and ballooning deficits, somebody is going to have to pay the freight. Strangely, inflation is rearing its ugly head despite a sluggish recovery. Oil prices are poised to climb. All of this adds up to rising interest rates in my mind. Besides, the experts say they’ll head up after the Bank of Canada’s rate hold promise ends next June. So, what to do, what to do?
On our home mortgage, we have a decent enough existing interest rate of 4.99% but, it’s coming due next October. That’s the part that I don’t like. It’s too early to book an early renewal (many banks allow as much as six months with a rate guarantee) and, it doesn’t make sense to pay a penalty to break the mortgage just so we can take a whole new one. So, here’s what we’ve done.
We have extended, blended and renewed all of our mortgages for five years. The bank applies the rate we’ve been paying all along to the balance of the existing term and then, they apply the current interest rate, which is lower, to the remainder of the five years beyond the current term. They blend the rates and voila, we’ve just locked in our mortgages for 5 more years for under 4.5% with no penalties. We could have run a variable rate which often works out well but, as I said before, I’m not much of a risk taker.