Did you know that you can now find a 5-year fixed mortgage rate in the low 2% range, the cheapest since 2016?

Based on Bank of Canada trends, we anticipate that low-interest rates would likely remain for at least the next two years. In fact, I would be surprised if the Bank of Canada lowered much more than a quarter basis point. If there’s ever been a time to refinance, it’s now.

Why refinance?

Refinancing can help if you’re looking to save on interest or reduce your payments to one low monthly payment. Unfortunately, during our current circumstances, some British Columbians are finding it difficult to manage their monthly debt payments.

When you refinance, you open a new, more affordable loan and use it to pay off your existing mortgage. As I have said time and time again, you’ll have to pay a penalty for breaking your old mortgage, but this single financial move can make a huge difference if you’re struggling to pay your bills.

This not only saves you a lot of money in interest costs but could also help protect their credit score if they have fallen behind in making their minimum payments.

How do I know if refinancing is for me?

If your mortgage rate is higher than 3% or 0.75% higher than the rates you can get now — you’ll want to calculate the potential savings from refinancing.

Let’s take, for example, a $500,000 mortgage with a 4% fixed rate and an amortization of 20 years. The total interest you’d pay over a 5-year term would be approximately $90,000.

The interest for that same mortgage at 2.69% would be approximately $60,000. So, by refinancing, you’d save approximately $30,000 over the full length of your 5-year term.

Unfortunately, if you have lost your job during this economic slowdown, you might struggle to qualify for refinancing however, there are still several non-traditional options available if you need access to funds.

Fixed-rate or variable rate?

If you are conservative, I would recommend a fixed rate and pay a bit more for peace of mind and a predictable monthly budget. If prime rises during your term, you won’t pay a cent more on your mortgage.

If you are more of a risk-taker and want the best bargain possible, I would recommend a variable rate, statistically, you pay less interest on variable rate mortgages than you do over the fixed.

If you are considering variable, remember that you can ask about converting to a fixed rate in the future. If interest rates start to increase during your term, you can make the switch without penalties or extra costs.

Canada’s Prime Rate is currently at 2.45% right now (less discounts), while fixed-rate mortgages are also in the low 2%. If you think refinancing might be for you during these challenging times, feel free to reach out to us and we’d be happy to qualify you for refinancing and/or prepare an estimate of the potential savings from refinancing.