Inspired by the flurry of annual statements I'd received recently, I called FirstLine to request an annual mortgage statement. It's on its way to me now, by regular mail. The customer service agent who helped me with my request noticed that my five-year fixed-rate mortgage is up for renewal this year. She pointed out that the interest rate was a little higher than current rates, and asked if I would like to speak to someone about switching it.
In her opinion, I would certainly stand to save money. I asked about the penalty, and I mentioned that my last mortgage had a three-month interest penalty associated with such a change-up. She did not answer the question.
Instead she patched me through to someone who could answer it for me, and set things up. I spoke with him for about two minutes. When I asked him about the penalty, he paused before saying... thirty three ... thirty three ... ... eighty five. That's four months interest!
I ran the numbers on how much the interest drop might actually save me. It would lower the monthly payments by approximately $50 per month, over a new five-year term. I fail to see how increasing the debt by $3333.85 would save me any money. That's because it would not, unless something truly horrifying happens with interest rates in the next 11 months.
Approximately $50 per month X 12 months per year X 5 years = Approximately $3000.
Unless I've overlooked something, I just don't get it. There are a lot of mortgage choices out there. It seems to me that if I choose to continue doing business with FirstLine for an additional five years, there should be some sort of return consideration, like waiving the fee, not penalizing the customer. I wonder if they have a customer retention department.
One thing that strikes me as particularly weird here: they approached me about breaking our contract, not vice versa. I did not approach them. Who really stands to benefit?
Most closed fixed-rate mortgages have a prepayment penalty that is the higher of three-months interest or the interest rate differential (IRD).
December 31, 2010 closing balance:
$160 960.17
Maturity date:
January 1, 2012
