It’s hard to believe that we are now approaching the end of 2019.  With the end of the year in sight, some mortgage lenders are introducing extremely aggressive promotions to finish the year strong.

Regardless of whether you have a mortgage coming up for renewal, have a new home purchase closing soon, or if you are in the middle of your current mortgage term, this could be the mortgage savings opportunity of the year.

5 year fixed rates have now dropped to as low as 2.24%! 

This rate is available for high ratio (insured) purchases or switches that are closing prior to December 31st.  A high ratio mortgage is any purchase with a down payment lower than 20%. If your current mortgage was originally insured, then you would also be eligible for this rate.

For those with 30% or greater down payment / equity, the lowest 5 year fixed rate is just a bit higher at 2.29%.  For those in the 20% down payment / equity range, the lowest is now 2.49%.

These are all promotions available for purchases and switches that are closing by December 31st of this year. 

Currently in the middle of your mortgage term? 

You don’t necessarily have to wait until your mortgage matures to take advantage of lower rates. If you arranged your mortgage in 2018 or early 2019, then you’re almost certainly in a rate well over 3%, which would mean there may be opportunity for significant savings, even after your penalty has been considered.

Let’s say you are one year into a 5 year fixed mortgage at 3.29%, with $400,000 owing. Your current lender quotes you a $5,000 penalty to break your mortgage early.  If you were to switch to today’s 2.29% 5 year fixed rate, you would save approximately $10,000 over the next 4 years of your current term.  That’s AFTER your penalty has been considered.  As you can see, the difference can be significant!  Even if you were only eligible for the 2.49% (if you had less than 30% equity), you’d still save approximately $7,000 over the remaining term.

There is big opportunity here.

Who is eligible for these rates?

To be eligible for the rates quoted, the following criteria must be met:

  • Purchase price of your home must be under $1 million. 
  • If switching, the value of the home needs to be under $1 million OR your original purchase date had to be before November 30th, 2016
  • Maximum amortization 25 years
  • Must be your primary residence (2nd homes are also eligible. No rental properties)

*If you are currently in a mortgage with a bonafide sale clause, such as MCAP’s Value Flex mortgage, or BMO’s ‘Smart Fixed Mortgage’, then you will not be able to break your mortgage before the end of your term unless you sell your home.  For this reason, switching mid-term would not be an option unfortunately. 

How is your penalty handled?

If you are switching your mortgage mid-term, then you’ll need to pay a penalty to break your mortgage.  Up to $3,000 of the penalty can be capitalized into your new mortgage.  Any amount over and above $3,000 would need to be paid out of pocket.

Few consider switching their mortgages mid-term, as most of the time it does not make any sense.  However, once and a while, a new promo comes out that is so aggressive that it makes sense to take the plunge. 

Restrictions

While these are fully featured mortgages, with prepayment privileges that are among the best in the industry, they have an added restriction that needs to be noted.  They come with a bonafide sale clause, which means that you cannot break the mortgage before the end of the term unless you sell your home.  This means that you cannot switch your mortgage to another lender, and you cannot refinance with another lender prior to the end of the term.  If you sell your home, then the restriction is meaningless.  At the end of your term, the restriction is also meaningless.

The last time we saw rates this low as exactly three years ago at the end of 2016.  5 year fixed rates at the time were as low as 2.14%, so we are pretty close to the lowest 5 year fixed rates in history.   

Paul Meredith is the author of the Amazon #1 best selling book, Beat the Bank – How to Win The Mortgage Game in Canada, and has ranked as one of the top 75 mortgage brokers in Canada since 2016. He was a finalist for Mortgage Broker of the Year in 2018, and can be seen as the exclusive mortgage broker on season two of TV’s Top Million Dollar Agent.