I have a 5.2% 5 years Fixed Mortgage (still have 36 months left), what should I do?

[audiorichard]

With the current 3.75% 5 years fixed rate everywhere, my mortgage rate is super high, so what should I do? I am still have 180k outstanding, 5.2% with 36 months left. I am scare that when I have to renew my mortgage, my rate jump up to sky..
Any suggestion?>:(

[pitz]

Make as many pre-payments as possible? That will reduce the overall risk of the loan.

You'll be hit with an Interest Rate differential if you try and replace the mortgage, so that's not really an option, IMHO.

[brunes]

You're screwed. This is why you always go variable. Any losses you later encounter when the rate increases, are always already offset by the gains you got during the beginng. 5 year Variable nearly always works out in favour of the consumer.

[audiorichard]

You're screwed. This is why you always go variable. Any losses you later encounter when the rate increases, are always already offset by the gains you got during the beginng. 5 year Variable nearly always works out in favour of the consumer.

It is too late now, so I am trying to look for the best solution to minimize the losses.

[pitz]

You're screwed. This is why you always go variable. Any losses you later encounter when the rate increases, are always already offset by the gains you got during the beginng. 5 year Variable nearly always works out in favour of the consumer.

Ummmm, no. Variable is bad for the consumer because the long-term spread between the return on bonds, and the return on T-bills is minimal, and when the economy is in the dumps, benchmark rates don't really go down as much as policy rates and T-bill rates, because banks jack their spreads up to cover defaults. Just read the threads about the Prime Rate fiasco, lol.

Basically if you bought a house at the horrible prices of the past few years, you've locked in a bad purchase. A floating loan has the potential to make matters worse, significantly worse, as the interest rate will rise at the precise time that the house is losing most of its value.

Best loan for consumers is a 30-year fixed, but that's quite problematic in Canada for a few reasons, namely, tax considerations.

It is too late now, so I am trying to look for the best solution to minimize the losses.

Pay as much of the loan down as possible. This is the best way to immunize yourself against rising interest rates.

[urban1]

Couldnt you renew now for another 5 years? You should be able to slightly lower your rate and extend for another 2 years (5 year term minus your 3 years remaining)?

[robert9a]

Couldnt you renew now for another 5 years? You should be able to slightly lower your rate and extend for another 2 years (5 year term minus your 3 years remaining)?

Not without paying a high penalty which would destroy the benefit of the lower interest rate.

Does your mortage allow you to increase the regular payments and make some lump sum payments? These are generally applied directly to the principal and helps you lower the interest you will pay. If so, this is the only solution. In three years, interest rates will be much higher than they are now and you will be screwed again so paying down the mortgage faster is a good idea.

[liorsyncro]

With the current 3.75% 5 years fixed rate everywhere, my mortgage rate is super high, so what should I do? I am still have 180k outstanding, 5.2% with 36 months left. I am scare that when I have to renew my mortgage, my rate jump up to sky..
Any suggestion?>:(
You will have to break your mortgage and that means a hefty IRD (which would surely be the penalty given where your current rate is). You'll need to compute whether the penalty to break the mortgage now is worth the long term savings.

One option these days is to take an unsecured line of credit to do a prepayment (if you are allowed) which would reduce the amount of the penalty.

Bear in mind, though, that when you ask your bank regarding the penalty to refinance to a lower rate, if they quote you an IRD, make sure you ask only when you are ready to close. The reason is because the penalty fluctuates. There is also another element. When you walk into the bank, you typically see the bank's posted rates. However, many borrowers often re-negotiate those rates and get a discount over the posted rate at that time.

When the banks calculate your IRD, they will calculate based on the posted rate and not the discounted rate you received. You will find plenty of stories these days about people who were quoted one figure by their bank, and when they were ready to complete everything months later, the original figure ballooned, sometimes by as much as a fourth-fold!

Check out some of their stories below:

http://www.ellenroseman.com/?p=414#comments

[audiorichard]

Not without paying a high penalty which would destroy the benefit of the lower interest rate.

Does your mortage allow you to increase the regular payments and make some lump sum payments? These are generally applied directly to the principal and helps you lower the interest you will pay. If so, this is the only solution. In three years, interest rates will be much higher than they are now and you will be screwed again so paying down the mortgage faster is a good idea.

My bank allow me to pay 15% lump sum and increase 15% repayment every year, and I already did increase the 15% repayment this year. Since I don't have any extra money on hand, so I don't able to put up lump sum anytime soon.
In term of my house price, I bought it in 2006, and it is lucky that my house is still above 15%~20% used market price.

Actually, I am worry about the super inflation coming in next few years. While US keeps painting out money like no tomorrow, personally I am expecting a high inflation few years later. I am worry I have to fixed my mortgage rate with super high interest rate at that time.

I am thinking to break the contract, but I am not sure it is good or not.

[Navvy]

Basically if you bought a house at the horrible prices of the past few years, you've locked in a bad purchase. A floating loan has the potential to make matters worse, significantly worse, as the interest rate will rise at the precise time that the house is losing most of its value.

Not if you're in Ottawa, as the OP is, you haven't. The NCR operates in a real estate bubble for the most part.

[moneytech]

here a middle ground solution.
"Blend and Extend"
they will blend the current interest rate with your rate and extend your mortgage by an additional 2 year (total 5 years)
pro:
- no penalties/rate differential
- no fees (if you ask nicely)

[juggie]

With the current 3.75% 5 years fixed rate everywhere, my mortgage rate is super high, so what should I do? I am still have 180k outstanding, 5.2% with 36 months left. I am scare that when I have to renew my mortgage, my rate jump up to sky..
Any suggestion?>:(

Ask your mortgage rep about blending.

[juggie]

Not if you're in Ottawa, as the OP is, you haven't. The NCR operates in a real estate bubble for the most part.

My house (condo) has gone up slightly in value over 3 years. I paid 190k and one sold next to me just now for 200 with a brutal looking kitchen and not ceramic throughout. I feel mine is nicer :) (same model)

[sslinn]

Phone you bank and find out what the penalty is. Send this and all you mortgage info, amorization, term, payment etc to me and I will tell you what you will save if you renew now. You will save money.

[juggie]

I should add that i'm in the same position but i'm pre-approved for another mortgage @ 0% (before they changed the rule) so i dont want to mess anything up atm. I'm locked in @ 5.05. As of oct09 (when my new house closes) there will be 2 years left so once my new place closes i plan to try and blend/break it then.

[Rudee]

Now would be the time to get a blended rate if you are still 2.5 years or greater away from your term.