Mortgage Payments Getting You Down?

 

Is the thought or renewing your mortgage a little stressful?  If your mortgage is coming up for renewal in the next year or so, I know that the rate you have on your mortgage is quite a bit less than what is being offered today.  

 

I get a lot of clients who wonder why their mortgage payments go up although they have been paying it down for 5 years.  To put it simply the interest rate along with the overall length of the mortgage determine what the payments would be.  Now that you have paid into your mortgage for 5 years, you will only have 20 years left, so the interest Rate is the main factor.  If interest rates were the same the payment on your mortgage would not change. 

 

Here is an example of what you could be facing.

Original Mortgage

$400,000

2.59% - 5-Year Fixed Rate (insured)

25 Year - Original Amortization

$1,809.84 – Monthly Payment

 

New Anticipated Mortgage

$339,163.33 – Remaining Balance after 5 years

5.54% - Average new 5-Year Fixed Rate (insured)

20 Year – New Amortization based on having paid the last 5 years

$2,328.68 – New Monthly Payment at Renewal

 

As you can see, the payments would increase by $518.84 per month.  This number would be even higher had you paid weekly or bi-weekly accelerated as it would have further reduced the remaining amortization period. 

 

In response to this issue, the lenders have become increasingly innovative.  This means, I can move your mortgage to another lender, and extend the amortization back to 25 years, which isn’t typically ideal if you want to pay down your mortgage quicker, but this strategy can produce monthly payments that are much more affordable.  Further, you can take advantage of the pre-payment privileges down the road to get back on track to paying off the mortgage faster.  In some cases I can even get an amortization period extended to 30 years which could further reduce your monthly payments. 

 

With this strategy you are still eligible for the best rates, and it would produce a payment of $2,078.13 with the same rate of 5.54%.  Although not as low as the original monthly payment but not as expensive as the new anticipated mortgage example.