Can You Break a Fixed Rate Mortgage in Manitoba?
July 6, 2023 | Posted by: Ron Chan
Are you considering a 5- or 10-year fixed rate mortgage in Winnipeg MB? The assumption about you as a buyer, is that you’re risk averse. This is understandable given the current state of the economy. And even though the adoption of a fixed rate mortgage at the moment isn’t as appealing as it was a year ago, you still appreciate the consistency of mortgage payments to follow. That being said, you can’t help but wonder what you should do if you get a fixed rate mortgage today, only to find that fixed rates fall significantly in the next year or two. Can you break a fixed rate mortgage in Manitoba? Of course you can, but the real question, is should you? Below is a simple and candid breakdown of what you need to know and do.
How to Proceed if You Want to Break a Fixed Rate Mortgage in the Province of Manitoba
Confirm What the Penalty Will be for Breaking Your Fixed Rate Mortgage
There will be a penalty for breaking your fixed rate mortgage. It will be detailed in a clause in your forthcoming mortgage contract. Lenders must add it to protect their interest (literally and figuratively).
Confirm exactly what this penalty is before entering into the mortgage agreement. In Manitoba most fixed-rate mortgages come with a prepayment penalty that is the higher of 3-months’ interest or the Interest Rate Differential (IRD). Variable-rate mortgages generally have no IRD penalties.
Compare the Benefit of New Mortgage Terms Over Penalty
Most people assume that because there is a defined penalty, that breaking a fixed mortgage never works in your favor. This is not necessarily the case.
The conclusion over whether or not you should break a fixed rate mortgage comes down to simple math. If the new mortgage terms with lower fixed rates outweigh what you pay in penalties, then it makes sense. Knowing this, don’t break the mortgage until you confirm with confidence that you can secure a preferred rate that will cover what’s lost in the penalties over the duration of the contract. This process may seem daunting, but it’s entirely seamless when you work with a mortgage specialist.
A mortgage broker who has well-established relationships with banks and alternative private lenders receives discounted rates on home loans. These will be passed on to you. As a result, the odds of getting the new rate required to make breaking a less favorable fixed mortgage are significantly higher.
Let a Broker Handle the Breakup!
Nervous about the prospect of informing a lender that you want to break a mortgage? Should the time come, you can pass this unpleasant duty to a mortgage broker. A broker has extensive experience with the process. As a result, you will avoid uncomfortable conversations with your lending institution while enjoying peace of mind that a professional has run required calculations to ensure that breaking the fixed rate mortgage is the smart choice. Further, a broker will ensure that your new mortgage terms better suit your financial situation and goals.
If buying a home in Winnipeg MB, or you are already in a fixed rate mortgage and want out, contact Ron Chan right away to discuss your options.
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