The Readvanceable Shuffle: Got a fixed rate above 3% in a readvanceable mortgage? Does your lender let you lock in the HELOC portion to a low-cost short-term fixed rate? If so, here’s a tip that might save you some interest. Jargon Buster: A “readvanceable mortgage” is one that has a regular amortizing mortgage linked to a HELOC. For folks with readvanceables, like an RBC Homeline or National Bank All-in-One, “There is an opportunity to bring down interest costs by using a HELOC to make prepayments,” says Jason Heath, Managing Director at Objective Financial Partners Inc. “I have clients with fixed rates from a couple years ago in the 3.5% range. Someone like that with a 10-20% annual prepayment limit, a high HELOC credit limit and an upcoming anniversary date could make a 10-20% prepayment now (on the fixed portion, using their HELOC), 10-20% after their anniversary date, and therefore get up to 40% of their mortgage at a 1.25 percentage point lower rate.” One could then turn around and lock that HELOC debt into a much lower short-term fixed rate. This strategy works best if you’re near your mortgage anniversary date. In that case, not only can you double your prepayment (since most lenders allow only 10-30% prepayments per year) but you can line up your maturities nicely. In other words, if you have two years left on the main 5-year fixed portion, you can prepay it using your HELOC and then roll that HELOC debt into a cheaper 2-year fixed. That way, the original 5-year fixed portion and 2-year fixed portion renew at the same time. This lets you leave your lender at maturity, if necessary, for a better deal elsewhere — with no prepayment penalty.
TD Cuts: The nation’s second-largest bank has lowered the following advertised specials:
3yr: 2.49% to 2.34%
5yr: 2.57% to 2.39%
5yr (high ratio): 2.37% to 2.29%
5yr: 2.20% to 2.15%
Inflation Subdued Despite Massive Fiscal Spending: “While there certainly is quite a lot of disruption to the supply side of the economy, that’s likely to be dominated by the huge hit to aggregate demand,” Evercore ISI Vice Chairman Krishna Guha told CNBC. It now appears, however, that core inflation may not dive as much as economists first feared. If so, that could limit the future downside for 5-year fixed mortgage rates, which are already as low as 1.66% for default-insured purchases closing by August 31.
Rate Trivia: On July 2, 2009, Sweden’s Riksbank (the world’s oldest central bank) became the first monetary authority to drop a country’s key lending rate below zero.