If you locked in your mortgage during the latter half of 2023 or the first half of 2024, there’s an exciting opportunity to potentially save thousands of dollars by switching to a lower rate mid-term. Many of my clients have saved between $5,000 and $10,000 by making the move—and in some cases, even more.
Who is Eligible to Take Advantage of the Lower Rate Savings?
Even if lower rates are available, this doesn’t mean that savings are automatic when making the switch. There are a few factors that we need to consider:
- The time remaining on your current term
- Your current rate
- Penalty to return (break) your mortgage early
Time remaining and current rate
There will need to be enough time remaining on your term and enough of a rate difference to offset the penalty to return (break) your current mortgage early. To come out ahead, there would need to be a minimum of 1.5 years remaining on your current term with a fixed mortgage rate greater than 5.24%. The more time remaining on your term and the larger the difference in rate, the greater your chances are for coming out ahead.
Anyone who closed their mortgage from around mid-summer 2023 to early summer 2024 will likely fall into this category.
Penalty amount
Another major consideration is your current lender’s penalty for returning (breaking) your mortgage early. The more time remaining on the term, and the larger the rate difference, the greater the chance of not just offsetting the penalty; but coming out far enough ahead to justify making the move
Waiting for Fixed Rates to Fall Further
In a declining rate environment, many are inclined to wait to see how much further mortgage rates will fall. But the problem with this mentality is that the further fixed rates fall below your current mortgage rate, the higher the penalty can become. This means that if rates fall further, the penalty to return your mortgage early could far exceed the savings received by converting to a lower mortgage rate, therefore making the move cost prohibitive. We saw this situation many times when rates plummeted in 2020.
This is why waiting for fixed rates to fall could result in you missing the boat all together. It’s not about securing the lowest rate… it’s about getting in with the right combination of lower penalty and lower rate.
As the penalty to return your mortgage is still at or just a bit higher than three months interest with many lenders, we need to act within this window of opportunity. If rates were to fall further, then we can expect the IRD penalty to kick in, which is something we need to get in ahead of.
We also need to consider that every month you wait reduces the remaining time on your term, making it harder to offset the penalty with savings.
Think of this as your “sweet spot” for action: rates are low enough to save, but penalties haven’t yet skyrocketed.
How Much Lower Will Fixed Mortgage Rates Get?
I’ve previously mentioned that fixed rates may not get too much lower than where they are today. Fixed mortgage rates are largely priced by bond yields. It’s not about what the Bank of Canada is doing with their rate. It’s about what happens with the bond yields.
There are some forecasts that the Bank of Canada could cut their rate by another 1.75% by the end of the 3rd quarter next year. But that doesn’t mean fixed mortgage rates will be following… nor are they expected to. In fact, there is currently upward pressure on fixed mortgage rates, so we may see the Bank of Canada cut their rate again on December 11th, while fixed mortgage rates could potentially be moving in the opposite direction.
How to Find Out If You’ll Save
Switching your mortgage isn’t a guessing game—we’ll crunch the numbers to see if it makes sense for you. Here’s what to do:
- Contact Your Current Lender
Ask for the penalty amount to break your mortgage.
- Send Us the Details
Email us at info@pmtmortgage.ca with the following:
– Penalty amount
– Current mortgage balance
– Renewal date (day, month, year)
– Current interest rate
– Current payment amount and frequency
– Name of your current lender
- Let Us Calculate Your Savings
Once we have your details, we’ll assess whether switching makes financial sense—and how much you could potentially save.
Good news: you don’t need to pay the penalty out of pocket. It can be rolled into your new mortgage balance, making the transition smooth and affordable.
Final Thoughts
Given that fixed mortgage rates have dropped substantially over the last year, it opens up a window of opportunity to potentially save thousands on your mortgage.
Once we receive the above information from you, we can then crunch the numbers to see if it makes financial sense. As always, we’re committed to saving you as much money as possible.
Who knows, you could end up thousands of dollars ahead by the end of your current term.
Email us today at info@pmtmortgage.ca, and let’s get started. Who knows—you could end up thousands of dollars ahead by the end of your current term!
One thing to consider though is that if you are mid way in you fixed term mortgage, then in remaining installments you’d be paying down more of your principal. Which may not be the case if you sign up for a newer one, albeit at a lower rate.
Thanks for the comment, and definitely a great point! Once we determine that there is enough savings to justify returning (breaking) the current mortgage, we would set the new one up with an amortization that matches what you remaining. This way it’s a continuation of where you left off based on the years remaining. We may suggest resetting it to 25 or 30 years and then matching the payments to what you previously had. This way, a much larger portion of the principal is being paid down, which in turn, reduces your amortization. You may want to check out my blog on Why Your Initial Amortization is Irrelevant. You can always revert back to the lower payment if needed at any time during the term. Hope this addresses the concern. 🙂