Mortgages: should u or shouldn't u??

Breakage issues with your mortgage? A well-stocked toolbox of online calculators can help.

With borrowing costs set to rise in the months ahead (see my Facebook page for comments: Rob Carrick - Personal Finance), homeowners have a dwindling amount of time left to investigate the possibility of breaking their mortgage to take advantage of today's low rates. The challenge is finding out, first, how much it will cost and, second, whether it's worthwhile to proceed.

This is where the calculators come in. They're online, they're free and they're useful to people who are both shopping for a mortgage and who already have one.

Your lender has the information you need to decide whether it's worthwhile to break your mortgage, but it's always smart to learn what you can on your own. It's not unknown for banks to exploit the uninformed and credulous.

The best way to find out the cost of breaking your mortgage is to use a calculator like the one offered on the website of the Canadian Mortgage Trends blog. It's explained here that your lender will require that you pay the greater of three months' interest on your mortgage, or an amount called the interest rate differential (IRD). That's the difference between what you would have paid in interest and what the lender can make at current rates for the remainder of your mortgage term.

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Is this a good time to lock in or refinance your mortgage?

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Four pieces of information are needed to use this calculator: the current balance on your mortgage, your original rate, the rate you can get now and the remaining number of months in your mortgage term. If you have online banking, you should easily be able to get this information (I found mine in about five seconds).

Play around with this calculator and you'll realize that, in addition to the gap between your existing rate and the new rate you'd like to get, the key variables in determining the compensation you'll have to pay your lender are the length of time left on your mortgage and your mortgage balance. The longer you have to go, the more likely it is that you'll have to pay the pricier IRD.

It's important to note that we're dealing in ballpark amounts here, not exact numbers. Still, you'll have enough information to proceed to Step Two of the should-I-break-my-mortgage analysis, which is to decide whether paying the compensation amount is worthwhile.

Canadian economy grows 5%, tops forecasts

The Canadian economy expanded by a greater-than-expected 5 per cent in the fourth quarter, raising the likelihood of interest rate hikes later this year.

The country's gross domestic product grew at the fastest annualized pace since the third quarter of 2000, Statistics Canada said Monday.

The economy's burst boosts the odds of a string of rate hikes in the second half of the year. The Bank of Canada announces its interest-rate decision tomorrow, and while rates are on hold for now, the tone of the announcement could well acknowledge that growth is picking up speed at a faster pace than anticipated.

“This report shouts strength, and increases the odds the Bank of Canada will begin to hike interest rates in July and stay on that path in the following decisions,” said Douglas Porter, deputy chief economist at Bank of Montreal.

The Canadian dollar climbed after the report, to 95.51 cents (U.S.) from Friday's close of 95.08 cents.