Some borrowers are tempted to renegotiate their mortgage to take advantage of rising home values. Is it a good idea?
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This is the case, for example, with Martin (who wishes to remain anonymous). He desperately needs $40,000 to pay off a debt that is crushing him. However, he is one of the “lucky ones” who still have a mortgage with a fixed interest rate of 2.3%.
Should he renew his mortgage at the current interest rate (ie around 6 or 7%) to have access to cash to keep him afloat?
“That wouldn’t be a particularly good idea,” said Alexandre Bélanger, TD’s mortgage lending district manager. “If Martin leaves his financial institution to take out a new mortgage, he loses his advantageous 2.3% interest rate.” “Having that rate for another two years saves him a lot of money on his mortgage,” he explains.
Alexandre Belanger photo from LinkedIn
hybrid solution
Some banks offer solutions that avoid renegotiating your mortgage. “In such a situation, we will do everything we can to keep the customer’s tariff advantageous. For example, he can leave his mortgage at 2.3% and then we add an amount, in this case $40,000, equal to the daily rate. So we’re going to add it all up and his mortgage will have a combined interest rate that’s the ratio of the two loans,” he explains.
It is a kind of “refinancing without debt restructuring”, if the bank offers such a solution.