What were you doing last week when you heard BMO dropped its 5 year mortgage rate to the record low of 2.99%? If you were like me, you were contacting your mortgage to talk about refinancing.
At 2.99% for 5 years the numbers are fantastic and, if you’re in the process of closing on your new home it couldn’t have come at a better time. After all, the cost to borrow $100,000 at this rate is a super low $473.69 (25 year amortization, paid monthly). I have a friend who just bought a home the day before the banks started dropping the rates. Lucky for him! But what about me and all the others that are already in a mortgage?
Well, like most people hearing the news I jumped on the phone to my broker and started asking the questions: “I’m under 2 years into my current 5 year term, can I refinance now? Is there a penalty to refinance now? Is it still worth refinancing even with the penalty?” etc.
After several emails and phone calls with both my wife and our mortgage broker, for us it was decided that the penalties required to refinance now don’t actually make it beneficial. At 2.99% though, we felt we truly had to take a close look at it and know we tried everything we could.
Although the dropped rate did not benefit me, those that are in the market to buy or who’ve just bought, this is a fantastic time. I’m not recommending that people start looking to buy a home just because rates are low “now,” but if you’ve been looking, I’d recommend you speak to your lender as soon as possible. Take the opportunity to buy the home you want, but don’t buy above your budget just because the rate is low. Be thankful that the financial stars are aligning for you as you get into the market. Instead of buying more home than you planned, buy the home you were already looking at. Take the differential from the 2.99% and whatever rate you budgeted for and throw the additional straight at the principle every month. You’ll be amazed at what paying a little more every month does to your interest costs over the duration of the loan.
Dan Thomson
