What is happening now with COVID-19 is dramatic. But as an optimistic person, I like to see the opportunities in each event.

The coronavirus could make your mortgage breathe or allow you to seek cash to pay your debts, to invest and take advantage of the decline in the stock markets or even make a new real-estate investment…

The Bank of Canada has announced a further cut in its key rate, which now stands at 0.25%. This is the third rate cut in less than a month. The key rate was still 1.75% in early March. This initiative aims to support the Canadian financial system during the current pandemic.

The major Canadian banks (at least 5 of them) followed suit and also announced lower mortgage rates, to attract new customers and to allow Canadian households to continue to have access to credit. The most advantageous reductions are on variable rate mortgages.

This could be a good opportunity to renegotiate or renew your mortgage early!

If you decide to renegotiate, you will surely have to pay penalty fees to break your contract before the term. The whole thing is to see if these costs are lower than the savings potentially made with the new conditions and the new interest rates offered. Current conditions could allow you to save big. But note that the more time there is left on the mortgage, the higher the penalties. This is why for a freshly signed mortgage loan; the game is sometimes not worth the candle.

In any case, I advise you to know what to expect. It costs you nothing to contact your financial institution and inquire about penalty costs and available options for an early renewal. Some banks even offer you to pay no penalty and offer you new, more advantageous conditions to keep you a customer.

For example, in the Planiprêt mortgage firm, you can take out a new variable-rate mortgage at a prime rate of 2.45% plus a discount to be added to this prime rate, thus allowing you to borrow at a variable rate as low as 2.20% (discount 0.25%). For example, on a mortgage of $250,000, this would save you $2,712.

Here’s why and how:

PAYMENT REDUCTION!

Scenario 1

On a mortgage contracted 3 years ago for $250,000 maturing in 2 years (initial term of 5 years) and whose fixed rate is 3.20%. Remaining amortization is therefore 22 years.

Savings: $2,712 in payments over the next 2 years (24 months remaining X $113) + $1,000 bank rebate* + difference in mortgage balance ($1,717)—notary ($800) = $2,712 + $1,000 + 1,717—$800 = $4,629—current bank penalty

*Under certain eligibility conditions

**assuming 2-year average of 2.20%

Scenario 2

On a mortgage contracted 2 years ago for $250,000 maturing in 3 years (initial term of 5 years) and whose fixed rate is 3.20%. Remaining amortization is therefore 23 years.

Savings: $4,248 in payments over the next 3 years (36 months remaining X $118) + $1,000 bank rebate* + difference in mortgage balance ($2,557)—notary ($800) = $4,248 + $1,000 + 2,557—$800 = $7,005—current bank penalty

*Under certain eligibility conditions

**assuming 3-year average of 2.20%