Does renewing your mortgage early save you money?

As you get nearer to the end of your mortgage term, you may wonder whether it is better to go right to the end of your term, or whether you should renew your mortgage early. The determining factor of course, should be whether renewing your mortgage early will save you money.

So, will it? The answer is that it depends.

If you renew your mortgage early, you may be able to get a better interest rate – which theoretically does save you money. This issue however is that when you renew your mortgage early, you will most likely have to pay a financial penalty which may offset any savings you got with the lower rate.

Ultimately, it is best to consult with a mortgage broker to help you determine the merits of renewing your mortgage early, but here are a few factors that will come into play.

The difference in interest savings

The more interest you can save by renewing your mortgage, the more likely it will be that you can save money by renewing early. If your current mortgage was obtained during a period of high interest, then the current low rates may well make it worth your while to renew early.

The length of term left on your current mortgage

Although you will have to pay a penalty if you break your mortgage early, the amount you will have to pay decreases as you near the end of your mortgage term. The closer you are to your renewal date, the less expensive your penalty will be.

Changes to your credit score

The interest rate that you are able to get when you renew your mortgage will depend in part on how good your credit score is. For example, when you got your current mortgage, you may not have been able to get the best rate if you had damaged credit. But if, over the past few years you have repaired your credit rating, you may qualify for a much more attractive rate – meaning that it might be worth your while to renew early, even if it means paying a financial penalty.

How do I know for sure if I should renew my mortgage early?

Calculating whether you will save money by renewing your mortgage early can be complex. It is best to consult with your mortgage broker to see whether this option makes sense for you.

If you would like to determine whether you should renew your mortgage early, contact us today to speak with one of our agents.