Should You Break Your Mortgage Now That Rates Are Dropping? Here’s What to Know Before You Do
With mortgage rates showing signs of softening across Ontario, many homeowners are asking the big question: Should I break my mortgage to take advantage of today’s lower rates?
It’s a fair question. After all, if your current mortgage rate is locked in at 5.5% and you’re seeing rates advertised at 4.9% or lower, it’s tempting to think about jumping ship.
But before you make a move, it’s important to take a closer look at the real costs of breaking a mortgage—and whether the long-term savings are actually worth the short-term hit. As a mortgage agent with over 15 years of experience helping clients navigate these very situations, I want to walk you through the pros, cons, and alternatives, so you can make an informed decision with confidence.
Why People Consider Breaking Their Mortgage
Let’s start with why this topic is even coming up. Over the last few years, we’ve seen mortgage rates climb to levels not seen in a very long time. Many homeowners locked into fixed-rate mortgages during the peak, hoping to ride it out until renewal.
But now that rates are easing, you might feel like you’re missing out by staying locked in. If you could refinance at a lower rate, you could:
- Save on interest over the life of your mortgage
- Lower your monthly payment to improve cash flow
- Consolidate debt at a lower rate
- Access equity for other investments or renovations
All great reasons. But they only make sense if the savings outweigh the penalty of breaking your mortgage.
The Penalty: What You Really Need to Understand
Here’s where the rubber meets the road.
When you break a mortgage contract early, your lender charges a penalty. This is typically either three months’ interest or the Interest Rate Differential (IRD)—whichever is higher.
For fixed-rate mortgages, the IRD penalty can be significant—sometimes in the tens of thousands of dollars. It’s calculated based on the difference between your current rate and what the lender can loan that money out for today.
Here’s an example:
- Let’s say your mortgage balance is $400,000.
- You’re 2 years into a 5-year fixed term at 5.5%.
- The lender’s current 3-year rate (what they could lend your money at now) is 4.5%.
The lender is losing money if you leave early. So, they charge you the difference in interest payments—your IRD—up front.
That’s why I always say: Don’t just look at the new rate. Look at the full picture. If the penalty outweighs the savings, breaking your mortgage won’t do you any favours.
How to Know If It’s Worth It
So how do you figure it out?
That’s where I come in.
When clients call me asking if they should break their mortgage, we sit down and run the numbers. I look at:
- Your remaining mortgage balance
- Your current interest rate
- The penalty estimate from your lender
- The rate you could refinance at
- The new monthly payment and long-term savings
If the savings from a lower rate after the penalty still makes sense—great. Let’s move forward.
But more often than not, we find that the penalty erodes most or all of the potential gain. And in that case, I’ll tell you honestly: It’s not worth it.
I work for you, not the lender. I’m not here to push you into a new product you don’t need. My goal is to make sure you feel empowered to make the right financial decisions for your life and needs—now and in the future.
When Breaking Might Still Make Sense
That said, there are times when breaking your mortgage is still the right move—even if there’s a penalty involved.
Maybe your life circumstances have changed:
- You’ve lost income and need to lower your monthly obligations
- You’re going through a separation or divorce
- You’re selling your home and need access to capital
- You’ve accumulated high-interest debt and want to consolidate
In these cases, the monthly cash flow relief could justify the penalty—especially if it’s the difference between staying afloat or not.
If this sounds like your situation, let’s talk. I’ll walk you through your options so you can make the most informed decision possible.
Alternatives to Breaking Your Mortgage
Before you make a move, consider these options too:
1. Blend and Extend:
Some lenders allow you to blend your existing rate with a new lower rate, creating a blended rate over a new term. This avoids the penalty but gives you some relief. Not all lenders offer it, but it’s worth asking.
2. Increase Payment Frequency:
If you’re looking to pay down your mortgage faster, changing from monthly to bi-weekly or accelerated payments might get you ahead without breaking anything.
3. Lump-Sum Payments:
Got some extra cash from a bonus or inheritance? Applying it to your mortgage could reduce your principal and save you interest without touching your current rate.
4. Line of Credit Against Equity:
If cash flow is the issue, consider a HELOC (Home Equity Line of Credit) instead of refinancing the whole mortgage. You’ll maintain your existing rate and avoid penalties while getting the liquidity you need.
When You’re Ready to Refinance, I’ve Got You Covered
If breaking your mortgage ends up making sense financially or is necessary due to life circumstances, I’ll help you through the process from start to finish.
Here’s what you can expect when we work together:
- A clear, honest review of the numbers
- Access to over 50 lenders with competitive rates
- Personalized advice based on your goals and budget
- Zero pressure—I only move forward if it’s right for you
- Step-by-step guidance until your new mortgage is funded
And remember—my services are free to you. I get paid by the lender who funds your mortgage, not by charging you.
Peter’s Perspective
Breaking your mortgage is a big decision—one that shouldn’t be made just because rates are lower today.
If you’re wondering whether now is the right time, don’t guess. Let’s look at your numbers together, weigh the options, and choose the smartest path forward.
Whether it’s sticking with your current term, refinancing, or finding another creative solution, I’m here to help you make the best decision for your financial future.
Thinking about breaking your mortgage? Let’s run the numbers together. No pressure, just clarity.
Contact me today →
📞 647-203-5440
📧 peter@peterabbatangelo.com
🌐 www.peterabbatangelo.com
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