I recently wrote that my husband and I were looking into , now that rates have reached historical lows. Most banks today have posted variable rate mortgages around 3.05 per cent.
Unfortunately, we are only two years in to a five-year term. As we discovered when we met with our bank's mortgage officer recently that means our penalty is high. I'm talking five-figures.
Each bank seems to have a different formula for calculating the penalty. Our bank's formula is a complex equation that left all of our heads spinning. After a few false starts and a consultation with the bank manager, the officer finally managed to apply the formula correctly. If you do go in to your bank for a review of your penalty, I highly recommend asking to see how it is being calculated.
Given the size of the penalty we're facing, we are now considering doing what's called a "blend-and-extend". This involves blending our existing rate with the current five-year fixed rate, which would reduce our overall rate to around 4.73 per cent. This is an improvement, but it's not great. And we'd have to commit to the new rate for another five years, which is what got us into this mess in the first place.
Some question whether to get into a fixed-rate mortgage, given their low levels. I still wish we could move into a variable rate mortgage but, after doing the math, it just doesn't make sense for us.
Does it make sense for you to break your fixed-rate mortgage to move into a variable? Are you thinking about a blend-and-extend? If you have some stories to share about refinancing, please let me know by commenting below.