Trying to Understand Mortgage Savings
Hi PFC, I'm struggling to figure out which number I save if I break my mortgage for a better rate.
Here are the basic details of my current mortgage, I can answer any specifics if required.
Amount left: $547,000
Rate: 5.03%
Term Maturity Date: Apr 1, 2027
Monthly Payment: $3025
I called TD, and I was told an approximate cost of breaking the mortgage early would be ~$7000 as well as a few hundred dollars in various fees that might be waived. I have an appointment Monday to get exact numbers as well as a new rate offer. Looking at the breaking cost and an estimated rate of 4.03%, I have calculated the following numbers:
At the new rate, keeping everything else constant, my monthly payment drops to $2712. I have considered the following numbers to figure out what I actually save, please let me know which makes the most sense to look at or if there is something else I'm missing.
Scenario 1: My balance at the end of 11 months (term end) is $538,600 currently, this drops to $537,100 with the new rate. This is a saving of $1,500. My monthly payment is $313 less, 11 months of that is $3,443. Is the total saving $4,943? If so, breaking the mortgage now doesn't seem worth it, especially considering I could do it 4 month before the end of the term with no penalty.
Scenario 2: I also ran the numbers with the new rate and keeping my monthly payment the same, i.e. paying an extra $313 a month. The balance at the end of 11 months is $530,100 in this scenario. Is the saving here $8,500? This option would also shorten my amortization by over 8 years.
Am I right in only looking at the end of the 11 month term? Is it better looking at the total amortization period using current interest rates?