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Mortgage Rates Keep Setting Record Lows – Is It Worth Breaking Your Current Mortgage?

July 7, 2020

Anyone who is staying up to date on the latest Canadian mortgage trends has noticed a significant pattern. Mortgage rates keep setting new record lows. While mortgage rates have been steadily decreasing over the past few months among the pandemic, many rates are now in record-setting zones. Concerns over a second wave of COVID-19 have caused Canada’s 5-year bond yield to fall to a record-low, which in turn is pulling down fixed mortgage rates. There are now multiple lenders offering certain 1-5 year fixed rates for under 2.00%.


With all the chaos that came with a global pandemic, the Canadian mortgage industry has also been hit with an unhealthy trend. Bank of Canada indicated that mortgage credit has hit a new record high in May, and can be traced back to the hundreds of thousands of mortgage payment deferrals made by Canadians. Canadians now owe over $1.68 trillion in mortgage debt, and it is continuing to increase at a rapid pace. The high debt reached in May is a 6% increase compared to the same month last year. The large amount of mortgage deferrals made means that at 700,000 people aren’t paying down their mortgage, just racking up interest.


With mortgage rates dropping significantly, MonsterMortgage.ca can help you take advantage of the economic situation and help you save money. Monster mortgage agents can do the math for you and see whether breaking your current mortgage for a low rate will have you paying less money, even with a high penalty cost. A mortgage rate 1% lower than the one you are stuck with now can lead to some significant money savings.


Is it worth breaking your current mortgage for a record-low rate?


These low rates are great news for new homebuyers and those with upcoming renewals, but they are likely very frustrating for borrowers who are currently locked in at a much higher rate. Fixed rates continue to reach new low levels and some are under 2.00% for the first time in Canadian mortgage history. This is leading to a predicament for those who are locked in at a higher, sometimes much higher, rate.


Someone who locked in a 5-year fixed rate mortgage just six months ago, would likely have a rate of around 3.39%, which was the average rate at the time. However, with comparable 5 year fixed rates as low as 1.99% now, there is a significant difference that can lead to large money savings.


Let’s walk through a real life mortgage case to see how breaking a current mortgage can work out to your advantage:


A borrower is currently breaking a 5-year fixed rate of 3.39%, despite a $32,000 penalty, in order to lock into a much lower 2.29% 5-year fixed rate.


After making a 20% lump sum prepayment and reinvesting the monthly mortgage payment savings back into the mortgage, the borrower still comes out ahead by $19,248 after the five years.


While this is not a one-size-fits-all solution, it may be worth exploring if you are currently locked in at a much higher mortgage rate. MonsterMortgage.ca will happily help you out and run the math for your personal scenario. Monster agents can do the calculations and see if breaking your mortgage makes sense. With exceptional rates going on, MonsterMortgage.ca can help you achieve greater money savings so you can Live a Monster Life!