Big words lead to big savings

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Denis Brunet of Mortgage Architects said his firm has seen a 25 per cent increase in mortgage refinancings in the last couple of months after lending rates fell. (BORIS MINKEVICH / WINNIPEG FREE PRESS)

Mortgage rates have fallen to levels not seen in a generation, and that has Manitoba homeowners beating a path to their banks and mortgage brokers to take advantage of the new-found bargains.

And that was before Wednesday's history-making move that saw the Bank of Canada cut its overnight rate to an all-time low of 0.5 per cent and the chartered banks drop their prime rates to 2.5 per cent.

One broker -- Denis Brunet of Mortgage Architects -- said his firm has seen a 25 per cent jump in mortgage refinancings in the last month and a half.

It's a similar story at Verico One Link Mortgage & Financial.

"My sense is that it (the increase at Verico) would be at least that much," mortgage broker Daryl Harris said in an interview.

Ted Sims, retail sales and service manager for Cambrian Credit Union, said he's also seen a jump in refinancings in the last month or two.

The three were commenting at a one-day mortgage symposium organized by the Canadian Association of Accredited Mortgage Professionals. About 200 industry reps attended the Winnipeg event.

Brunet said he started to see mortgage refinancings surge in mid-January. It was like "somebody flipped a switch" and homeowners suddenly realized they might save thousands of dollars by tinkering with their mortgage.

Their options, according to Brunet, include replacing their mortgage with a lower-rate one, blending it with a new one or consolidating high-interest-rate debts -- like car loans and credit-card debts -- and tacking them onto their principal.

Winnipeg financial planner Dean Cockell, one of Brunet's clients, estimates he'll save "tens of thousands of dollars" by consolidating all of his credit-card debts and personal loans and adding them on to his newly refinanced mortgage.

"You want to get that high-rate debt down as low as you can," Cockell said, noting he was paying up to 12 per cent interest on some debt and only 4.1 per cent on his new five-year, fixed-rate mortgage.

"That's a huge difference. And I don't have to make all of those other payments every month."

Harris and Brunet predicted the number of refinancings will continue to escalate as more homeowners become aware of the potential savings and others decide to take advantage of the new federal tax credit available for home-renovation projects.

But while many homeowners can benefit from refinancing their mortgages, Harris and Brunet said that's not the case for everyone.

They noted homeowners have to pay a penalty to get out of their existing mortgage. Sometimes it's the equivalent of three months interest, but in other cases it's the difference between their new mortgage rate and their old rate, multiplied by the number of years left on their old mortgage.

"Every mortgage is different and every situation is unique," Brunet said. "There are times when it makes sense, and times when it doesn't make sense."

He said the best bet is to talk to a mortgage professional -- either a broker or a specialist with your financial institution. They have software programs that will figure out the savings and whether it's worthwhile to refinance or go the blended route.

Brunet said the rule of thumb is that if you're mortgage rate is higher than five per cent, it's worthwhile to explore refinancing.

The same goes for consolidating your debts and adding them onto your mortgage, Harris said.

"It always pays to take a look at it. Even if it doesn't make sense now, it might make sense when your term runs out."

Meanwhile, a report by CIBC World Markets says growth in Canada's mortgage market has slowed to roughly half the pace of six months ago, while non-mortgage consumer credit also has weaker growth.

"The slowing will accelerate over the next few months," said CIBC economist Benjamin Tal. "You will see less spending and more savings."

murray.mcneill@freepress.mb.ca

-- with files from The Canadian Press

Before you break your mortgage

With mortgage rates at historic lows, a growing number of Manitobans are refinancing to cash in. Here are some things the experts recommend you take into account when deciding whether to go that route:

YOUR OPTIONS: You can pay a penalty to terminate your existing mortgage and negotiate a new one at the lower rates. Or you can keep your existing mortgage and tack on some extra years at a blended rate. While each case has to be examined on its merits, Daryl Harris, a broker with Verico One Link Mortgage & Financial, said most homeowners are better off refinancing.

 FIXED OR VARIABLE: The interest rate for a new variable-rate mortgage is usually the bank's prime rate (2.5 per cent at the moment) plus three quarters or one per cent. So that means a rate as low as 3.25 per cent. Interest rates on fixed-rate mortgages are tied to the world's bond markets, and yields didn't come down on Tuesday when the Bank of Canada lowered its trend-setting overnight rate to 0.5 per cent and the chartered banks lowered their prime rates. But even without any reduction this week, the most popular fixed-term mortgage -- a five-year closed -- can still be had for as little as 4.19 per cent, brokers say. Harris said 80 to 90 per cent of his clients are opting for the five-year, fixed-rate. "The rates are the lowest they've been in a generation and they're locking in... The people with less than a 20 per cent downpayment want that security."

PENALTIES: There's a penalty to be paid for terminating your mortgage and replacing it with a new lower-rate one. It's usually either three months worth of interest at your existing rate, or the difference between the existing rate and the new rate multiplied by the number of years left on the existing mortgage. For example, if there are three years left on a $100,000 mortgage and the spread between the old and new rates is one per cent, the penalty is about $3,000 ($1,000 a year times three years). So you have to figure out if the money you save is more than the penalty for breaking your mortgage. "Every mortgage is different and every situation is unique," said Denis Brunet, a broker with Mortgage Architects. "So they should have a mortgage professional sit down with them and review their situation." He said a guideline to follow is that if your mortgage rate is more than five per cent, it's likely worthwhile to explore your options.

Republished from the Winnipeg Free Press print edition March 5, 2009 B4