| The interest rate has just dropped and you wonder | | | | say $3,000 and some companies charge you three |
| if you should try and get a lower rate on your | | | | months extra payments, and there are many |
| mortgage, but there are penalties involved in breaking | | | | variations in between. |
| your mortgage agreement. Hmmm...what to do? | | | | The Internet has many mortgage tables to help you |
| Once we are indebted to a mortgage broker or a | | | | to calculate your exact repayment differences. Just |
| bank, that financial institution prefers us to stay the | | | | one quarter per cent is a minimal difference, but one |
| course. They have already calculated that they will be | | | | per cent is a big difference, as this example shows: |
| receiving X amount of dollars from you for the next | | | | In this example the amortization is 240 months (this |
| five years (or three years etc) and these figures are | | | | is 20 years, the complete length of time of the loan - |
| in their investment portfolio. Your money has been | | | | regardless of the smaller mortgage periods) and the |
| ear-marked by them as their known quantity of | | | | interest rate is 7.5%. Let us imagine that |
| 'spending money', usually to be invested in the stock | | | | hypothetically, the interest rate has been gradually |
| market. | | | | dropping and it is now at 6%. |
| The finance companies like things neat and tidy. They | | | | Your monthly repayment is $1,550 and you have two |
| discourage you to mess about with their plans. And | | | | more years ( 24 months) left to pay at this |
| they certainly do not like to lose money, hence the | | | | rate.Even if you have the three month penalty clause |
| penalty for changing your mortgage (you will only | | | | to pay and you add it onto your total mortgage, |
| change it if the rate goes down). | | | | your monthly payments, albeit with this slightly larger |
| However, they are willing to talk to you about a | | | | mortgage amount (the penalty of $3,000) will be |
| change in your mortgage, so it is worth making an | | | | lower. They will be $1291 and your savings over the |
| appointment to see what their calculations and advice | | | | last two years of your repayment period will be |
| amount to. | | | | $5,016. |
| The two main factors to take into account are: how | | | | Many times the interest rate is not so marked as the |
| much the drop in interest rates amounts to and how | | | | example, but contra to what most people think, it is |
| much is the penalty. Each contract may have a | | | | worth looking your figures up on a mortgage table, |
| different penalty. Some companies use a set amount, | | | | or phoning your bank to check. |