Fixing/refixing your mortgage isn’t as exciting as buying a new house. Or, for that matter, as exciting as getting a pizza coupon in the mail. But gives you a valuable opportunity to clarify your financial situation and ensure your mortgage is evolving along with your circumstances. This article walks you through what to consider and will help inform your conversations with your mortgage adviser.
What does the market think interest rates will do? Perhaps more importantly, what is your risk tolerance, and how financially secure are you? Locking in rates for a long time mitigates the risk of higher interest rates but also stops you from benefiting if rates go lower. You may prefer to lock in a rate now and have higher financial certainty for the next few years or so. Or perhaps you’re happy to take the chance with a shorter-term fixed period. Or even go with the floating rate on the bet that rates will keep going down. It’s about finding the balance that is right for you.
If you have one mortgage account maturing in a year’s time, you generally wouldn’t fix another account to mature at the same time. This is to mitigate the impact of payment shock if interest rates were to drastically increase a year from now. Instead, look at fixing for a longer or shorter period to space out your accounts’ maturity cycles.
It’s a worthwhile exercise to sit down and forecast your next 1-2 years. Run through your best and worst-case scenarios and how they may affect your mortgage.
Common things to consider are:
If you sell your house during a fixed interest rate period, you could have to pay a break fee to the bank. This is because when you fix a rate with the bank, you are promising to pay them interest over the period of the fixed rate. The break fee buys you out of that obligation.
So keep break costs in mind when deciding whether to fix an interest rate and for how long. Note that leaving your mortgage on a floating rate means paying higher interest rates; you’d want to be pretty sure you were going to put your house on the market in the next three months. Otherwise, you may want to consider refixing for six months. If your plans were to change while on a floating rate and you were no longer looking to sell, make sure to refix your rate then.
If you want to know what your break fees would be, you can ask the bank. Don’t worry, they won’t hold it against you! However, the quote for break fees is valid for one day only. This is because the pricing calculations the banks use are based on current numbers, so the fee changes on a daily basis. Use the quote to estimate the approximate fees but don’t expect them to be exact.
Some things to consider:
At The Mortgage Lab, we walk our clients through structuring or refixing their mortgage at no cost. You don’t need to find all the answers yourself; give one of our advisers a call to discuss your options.
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