Hi guys refinance the house but couldnt penalty is huge please help and advise?

Fritz
Hi Guys, Hope someone could answer my question. I got my mortage last year in January(08). The interest rate I got (at that time the best) was 5.9% fixed for 5 years. Now, with the low interest rates, I am also thinking whether I could refinance my mortgage. However, the issue is the bank where I have a mortgage quoted the penalty as $20, 000 if I change my product. I still have 4 years to go. Currently, I am paying about $1850 each month. I calculated and with the current interest rate (3.05%), I would be saving about 300-400 buck each month with the same amortization(biweekly/29 years). My balance is 3, 07, 000 and penalty is 20, 000. The house is worth about 3, 37, 000(per 2009 assessment).I talked to my bank and they are not willing to refinance. Now, I am stuck for another 5 years, and looks like even if I want I couldn't get benefitted from the lower interest rates.Am I screwed, or is there still a light at the end of the tunnel? Very frustrated!!!

Carmine
They will penalize you $20, 000? Generally, mortgage holders will allow you to refinance with someone else. So, I don't see how your bank can get away with this. Need to read the fine print of your agreement to see if this is legal. You may have to sue them.Another idea is to pay down your mortgage and pay off the mortgage sooner to save all that interest. Of course, when you pay extra ahead of schedule, you only save interest at the backend. That means that if you pay off a year of mortgage principle ahead of time, you save interest from year 28 or 29 of your mortgage. You should not have a pre-payment penalty. Would it be worth it to you to walk away from the mortgage and the house? I bet not.So, the idea of paying off your mortgage sooner may save you alot of interest. The best way to do this is to save alot and when you have the full amount to pay it off, then pay it all at once. Paying extra as you go does not save you money up front. So, saving up for the full amount can make you a little bank interest until you have the full amount.Another idea would be if you can get a separate loan, then use that money to pay off the house. Probably would be hard to get such a loan.

Joseph
hey ... i guess in canada mortgages are different ... going rate in America on a 30 yr fixed is 5% (maybe 4.75%) ... check bankrate.com or yahoo.finance or cnn.com ... also a 20k ppp (pre payment penalty) is alot but here the most years would be for 3 years ... bottom line is you have a decent rate ... there are many people out there with 8% who can't refi for one reason or another

Bonny
The bigger problem that you may have is that you do not have 20% equity in your house. When I tried refinancing recently, the banks told me that they would only lend 80% of the _current appraised value_, and any difference between that number and the amount of the previous mortgage would have to be paid out of funds that I have. Which would entirely negate the advantage of the lower interest rate.