6 September 2010

Let’s see how it can work. For a start, we’ll assume our borrower has:  
•    A $250,000 mortgage
•    A 5-year variable-rate term
•    A 25-year amortization
Now let’s assume:
•    Our homeowner’s mortgage is at today’s 2.75% prime rate.
•    The borrower switches into a new variable-rate mortgage at prime – 0.70% (it means it’s 2.05%)
•    Then, on Sept. 8, the prime rate rises by 25 bps (0.25%)
•    As the economists expect, the rates then stay unchanged until June 2011
In the end we get:
•    Total savings on interest:  $8,345 (over 60 months)
•    Penalty:  $1,719
•    Discharge Fee: approximately $250
•    Net benefit: about $6,376
It seems that saving thousands is quite a good idea. That’s why if you’re in the same situation, it’s necessary to consult your mortgage broker in order to find the best variant of refinancing.