Is your mortgage coming up for renewal? Then this is the video for you!
If you locked into a fixed rate when mortgage rates were near a record low, you’re probably wondering how the higher mortgage rates of today will affect your mortgage payment at renewal. But a doubling of mortgage rates at renewal doesn’t equal your mortgage payment is also going to double. We’ll go over the math together.
I’ll also share 3 easy ways to lower your mortgage payment at renewal if it’s too high.
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Full Transcript
Hey, everyone is your mortgage coming up for renewal, and you will want to watch this video. If you locked into a fixed rate mortgage when mortgage rates were near a record low, you're probably wondering how the higher mortgage rates today will affect your payment at renewal. That's a question that I'm hearing from a lot of my clients as an independent mortgage broker. But just because your mortgage rate is doubling, it does not mean that your mortgage payment is going to double, we'll go over the math together. And you will definitely want to stick around because I'll share three easy ways to lower your mortgage payment if it's too high for you at renewal.
And just quickly, if you're enjoying this video, please give us a thumbs up it really means a lot and will help us make more great videos like this. Now the first thing you want to do is estimate what your new mortgage payment will be at renewal. And as mentioned earlier, just because your mortgage rate is doubling at renewal does not mean that your mortgage payment is going to double. So let's go over the math together.
Now let's say you bought a property five years ago, and you took out a mortgage of $600,000, you signed up for a five year fixed rate at 2.49%. Your bi weekly payment would have been in 1238. And that would leave you with a balance today of a little over 507. Assuming you're facing a mortgage rate of 5.49%. At renewal, you think that your mortgage payment would be quite high, but that's simply not the case, your new bi weekly payment would only be $1,600.
Even though your mortgage rate has over doubled, you're only looking at an increase in your bi weekly payment of 30%. That's nothing to sneeze at. But it's certainly not double the payment that you're looking at, like some people may fear is that still too high for you? Let's look at three easy ways to lower your mortgage payment at renewal Way number one is to stop paying your mortgage payments on an accelerated basis on the same $600,000 mortgage, if you paid your mortgage on an accelerated bi weekly basis, your mortgage payment would have been higher at 1342.
And because of the higher payments that come with accelerated bi weekly, your mortgage balance at renewal would only be a 493. And you'd only have 19 years and three months left at renewal instead of 20 years. If you kept paying your mortgage on accelerated bi weekly basis based on a mortgage rate of 5.49%, you'd be looking at a mortgage payment of 17 at 23 every two weeks. However, if you switch your mortgage payment frequency to a regular bi weekly basis, you're only looking at a payment of 1589. And that's a savings of $134 every two weeks. If that payment is still too high for you, let's talk about the second easy way to lower your mortgage payment, which is extending the amortization period on a mortgage transfer.
If you're making extra payments on your mortgage, did you know that you can extend your amortization period back to what it normally would have been if you hadn't made the extra payments. That's right, it's true. And it would still be considered a mortgage transfer rather than a refinance. So you would still qualify for best mortgage rates using the same $600,000 mortgage example from earlier. Let's say you made a lump sum payments during your mortgage term and your mortgage balance was 467 renewal.
In that case, you would have 18 years left on your mortgage instead of 20. If you kept your mortgage amortization at 18 years and chose to pay it on a regular bi weekly basis, instead of accelerated your mortgage payment would be 1566 every two weeks. But if you extended the amortization back to 20 years, what it normally would have been without making the extra payments, you're only looking at a bi weekly payment of 1474. That's a savings of $92 every two weeks.
Here's a fun fact, if you have a collateral mortgage, you actually have the ability to extend the amortization period of your mortgage back to 25 years regardless of if you've made extra payments. And it's still considered a transfer and not a refinance. So you're able to qualify for best mortgage rates. If you have a mortgage with a home equity line of credit, then you have a collateral charge mortgage. If you have a mortgage with a big bank, it's more than likely collateral as well.
If you're not sure whether you have a collateral charge mortgage, you can speak to a trusted independent mortgage broker like myself and I can find out what type of mortgage you have. Again, using the same example as before a $600,000. Mortgage, let's say that you are 10 years into your mortgage and you're paying on a regular bi weekly basis. That would mean that your mortgage balance would be around 403 at renewal based on a mortgage rate of 5.49%.
Your regular bi weekly payment would be 1512 every two weeks, but since you have a collateral mortgage, if you stretch the amortization back out to 25 years, your new regular bi weekly payment would be 1130 for that savings of 378 every two weeks. The third and final easy way to lower your mortgage payment is by refinancing your mortgage, you're able to refinance your mortgage for up to 30 years, which can reduce your mortgage payment dramatically. And if you want to switch mortgage lenders at renewal, but you're not able to because of the mortgage stress test, stretching your mortgage out to 30 years can be helpful as well because it makes it easier to qualify with the lower payment.
Using the same example as before. Let's say you have a mortgage balance of 403 at renewal and 15 years remaining, you don't have a collateral charge mortgage and you haven't made any extra mortgage payments. So the only way for you to extend your amortization period is by refinancing your mortgage. If you simply transfer your mortgage, again, you're looking at a biweekly payment of 1512 every two weeks and that's just too high for you.
So you've decided to refinance your mortgage. In our example here we'll use a slightly higher mortgage rate of 6.29% rather than 5.49% because refinances typically come with higher mortgage rates, but as you'll see, it will still provide you with a lot of cashflow flexibility. If you extended your amortization to 30 years, you're only looking at a biweekly payment of 1140. That's a savings of 372 every two weeks Wow.
Remember, this isn't necessarily forever once your cash flow situation improves or interest rates drop when your mortgage comes out for renewal. You can always shorten your amortization period or make extra payments during your mortgage term. And those are the three easy ways to lower your mortgage payment at renewal. If you enjoyed this video, please like share and subscribe. It really means a lot it makes a huge difference. And if you have any questions please comment down below. You'll also find a link to book a no obligation one on one mortgage consultation with me. Thanks for watching.