With fixed rates trending downward, many homeowners with higher fixed-rate mortgages are asking themselves if now is the right time to break their mortgage and secure a lower rate. The answer often comes down to one key factor: the penalty.
Most bank lenders calculate this penalty using what’s called the interest rate differential (IRD). In simple terms, the IRD looks at the discount you received when you first locked in your mortgage, then compares it against today’s posted rates for the remaining term of your mortgage. The catch? The lower today’s rates go, the bigger your penalty may become.
This creates an unusual dynamic: while falling rates are good news for borrowers, they can make breaking a fixed mortgage more expensive the longer you wait. That’s why acting sooner rather than later could save you money in the long run.
One potential strategy is to break your mortgage now, switch into a variable rate, and either stay flexible or lock back into a fixed rate when interest rates hit their bottom. The right approach will depend on your personal financial situation, your risk tolerance, and your goals.
If you’re wondering whether it makes sense to break your fixed rate mortgage now, reach out to us. We’ll run the numbers, explain your options, and help you make the move that’s best for you.
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