I doesn`t matter if you break 3 years later or 6 month before the term ends. You will pay the same mortgage penalty, 3 month mortgage interest or Interest Rate Deferential penalty.

A little clarification to mortgagepro`s comment. It is true that you will pay a penalty regardless of the months remaining but the penalty could be drastically different between a 3 year and 3 month remaining term. There are 2 calculations that the banks use for penalties. 3 months interest calculation and Interest Rate Differential IRD. If the conditions are right 3 months penalty for 3yr or 3month term should be close. If the conditions are such that an IRD will be used to calculate your penalty then you are looking at a huge difference in penalty. Talk to your bank and they will calculate the costs involved for you. My suggestion is to consider a port of your mortgage. A port is where you move the mortgage term rate and balance to the new property with no penalties. You can straight port it (no change in any mortgage particulars). You can port increase where you need more money (term remains the same, higher mortgage amount and the rate is blended with todays rate). Or do a port reduction (same term, same rate, smaller mortgage amount required for new house, some penalty may apply but much less than a complete break). One last thing I should mention. Once you bank gives you your options please contact a Mortgage Agent to do some further calculations for you. Many people have benefited from switching to a new bank for their new home. This is especially true today where rates are much lower than any mortgage started over 2 years ago. In the end what you end up doing with your mortgage must depend on how much money you will save going forward. That should be your #1 priority, mortgages are very expensive over time, you have to find ways to minimize your costs. I would be happy to consult with you if you have any questions. Abraham Niyazi - Mortgage Agent - Lic#M08010640 - Centum One FInancial Corp - Lic 10758. Cell: 416-993-4082 Toll Free: 1-866-728-3708 http://www.centum.ca/abraham_niyazi/ I deal with 25 Banks/Lenders and can do mortgages across Canada except Quebec.

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If you believe that the housing problem is at the root of the financial global crises why not let the private sector get involved. i propose that when a mortgage restructuring takes place and a lender determines what the homeowner can afford, and reduces the owners equity stake in the home to 10% or something like that instead of kicking them out onto the street (depending on what the homeowner can afford to pay). so lets use as an example a homeowners who's monthly payment is currently $2500 of which 95+% is interest, and they can only afford to pay maybe $1000 per month as they got into the house with a sub-prime loan and cannot afford it, they never could and were hoping that the value of the house would go up to cover themselves. well, strip them on 90% of the equity allow them to stay there and resell the other 90% to the open market for the balance of the payment, in this case $1500 per month. then all that is left to do is for the government to allow for two tax breaks for the new investor to make it worth their while to buy the 90% stake in a home that they are not going to be living in and a guarantee for the old subpime borrow who should have never been allowed to purchase the home in the first place. #1 the government must give the new buyer a tax credit for the interest paid, not a tax deduction. #2 no capital gains tax, zero capital gains tax for the investor when they sell their stake in the house. my thesis is that private capital can fix the problem if you make it a tax haven for them, yes that is a government subsidy for the middle to upper class, but it would fix a lot of the problems that the middle and lower class are having, so it really is a win, win... i think! finally the us government has to guarantee the payment of the home dweller, turning the toxic asset back into aaa paper once again. this in my opinion would put a floor on the housing market, stimulate private investment in housing and open the credit markets back up. because i'm not an economist, i'd like to hear the opinions of economists or market savvy individuals regarding this plan. why would it work or why not?

I think the issue would be greed. For the investor, why pay to buy 90% of something at $1500 a month for who knows how many years when he/she can simply let the price drop, foreclosure and pick the property up for a pittance without tenant I have no say over? Also, you do know that you are actually suggesting that the government is shouldering a huge part of the costs. The US government is already running huge deficits, allowing tax credits on the scale you are suggesting will put a huge burden. Chances are it might be better for the government to take that 90% equity rather than the private sector in your plan, just like they are doing with some financial instutions, but in this case there would be much less maggots under the carpets that require more funds.

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We bought five years ago in prime, but we (thought) we bought smart! in a nutshell, we were "nearly harassed" by our bank to refinance after only one year and had long discussions about our being "too conservative" and needing to "use the equity in the house to update it and double your money." of course we didn't expect to double it, but people were doing just that all around us (even triple!). now, at the end of our 3-year adjustable rate mortgage (originally had a fixed of only 5%!) and lost one job, the second one's pay got cut, etc. etc. we were still okay! cut back to a very lean lifestyle without cable tv, etc. etc. etc. the only thing the bank (the servicer because it's now a freddie mac loan) is willing to do "to help us" is change our loan to forty years at 3.75% which seems like a great rate, but they've tacked on $20,000 in "fees!" and by charging us fees and adding ten years, what exactly are they "offering us?" this house is worth $323,500 but the certified appraisal from march 2007 was $548,500 (that the bank itself paid for). no one is selling in our neighborhood. they sit on the market for a year, then foreclose... my question to anyone out there who can offer a "numbers opinion" is this: the total debt now including the equity line is $500,000! in 12 short years we'll be 60 years old and only be 1/4 of the way through the loan, probably not making the same income! if we do get better jobs and have to move, say in three years, we have to foreclose to get out of the house... better to do it now and start repairing credit before we're sixty? using average projections, etc... this house won't even let us break even and move in five years... more like ten but the cost to stay... even more by then, the roof, etc. could bankrupt us anyway... we have to decide tonight whether to take the deal or just foreclose and start a new life, be it full of headaches and lawyers for a couple of years... we just lost another $2,500 in the past 30 days... walking away is an option because "most" lenders are not going through with the costs associated with judgments and civil suits since it's obvious we're broke if we lost our only property... if they do sue us, so be it. we have nothing and can easily live a cash/simple life just to be out of this nightmare that's been going on since january! the big question is... on a house worth $320,000 today and losing more every month, how can we justify a brand new 40-year loan for $496,000 at age 48. the age is key... thanks again. short sale does not do less harm to your credit report since nowadays, most of the lenders are requiring you to sign a form guaranteeing the shortage! this makes it so that they don't even have to sue you! you're agreeing to it! the same goes for "deed in lieu!" basically, if you can't stay in the house, you should foreclose once you really learn all the legal details! the lenders are pushing the hype around short sales and deed in lieu only because it helps them! with the hundreds of thousands of foreclosures in this country, it's only a matter of a couple of years before there are all kinds of "new loans! foreclosures okay!"

Technically, you don't foreclose. The bank does it to you. What you are considering doing is a walk-away, which for some people is a logical if not all that ethical choice. The financial problems with these type of mortgages came when people started looking at housing as an investment, not a place to live. Now you are facing a decision as to whether or not the amount you are paying in exchange for a place to live is still the right decision for your family. So, here are a couple of things to consider. 1. How long will you live in this general community. If less than 10 years, it is unlikely that your house will increase in value enough to pay off the mortgage , so you might face the same kind of decision later, although probably for less of a difference in money. If you will stay longer than 10 years, it is likely that this house value will rebound enough to pay off your mortgage. So, if you plan to stay put for a long time, and can afford the payments, the decision leans toward refinancing and staying put. 2. Put aside your age, as you will always need a place to live whether own or rent. When you took the 30 year mortgage, you were going to be in your mid 70's when it was paid off, so the idea of this going until you are in your 80's isn't really all that much more scary. It is more likely you will sell it and move before you reach such an advanced age, so focus on the immediate issue of "cost of housing". Answer the question: is the after-tax price you pay for this house comparable to what you would pay to rent something similar? My math says you are probably paying about $2,500 a month in mortgage costs to the bank. But, hidden in that is a tax deduction that is worth that is worth between $500 - $800 a month, making your true cost for this house (after the tax deduction) around $1,800 - $2,000. Could you rent a similar place for an amount much less than this? Then the decision leans toward walking away, and going into a rental. 3. If you modify - will the resulting savings allow you to stay where you are, and allow you to improve other areas of your financial plan? How much lower will your monthly payment be if you switch to this modified 40 year loan. If you go to www.bankrate.com, you can put in the variables (loan balance, amount of time, interest rate) and it will calculate the monthly bank note payment for you. From what I can read in your question, this lower rate and longer time will drop your payment by approximately $500 a month. Ask yourself: what could I do with that extra $500 a month to bring myself more financial security? For example, could you increase your retirement savings (which would be protected from a law suit in the event you did lose your house)? Could you pay off credit cards or a car loan, freeing up other areas of your budget? Could you add it as an extra payment on your house, making your debt go down faster? This could provide a good amount of breathing room for you. If so, that leans the decision toward taking the deal and staying put. 4. Will walking away really free you from this obligation? You mention you have a home equity line of credit. Check the language on that loan. In many cases, HELOCs are written as recourse loans, which means even if you walk away from the house and let your bank foreclose, you are not relieved of this debt. The HELOC lender can still sue you and garnish wages. If it is a non-recourse loan, then they can't generally do this. Take the time to understand what type of loan you have before making a serious decision here. You may find that you are walking away on from your first mortgage, but still on the hook for that HELOC loan. 5. If you do walk away and rent, how stable will rents be? One of the nice things about owning a home is your payment stays relatively stable for a long time. Rents can be counted on to increase $50 a month or so for many years. My personal opinion is the 3.75% is an incredibly low rate, one not given to any ordinary customer, and the $500 a month savings in your mortgage means you can make back the fees for the refinance in about 4 years, so I would take the deal if I would stay there for 4 years or longer. If you shop for a rental and find you could rent a comparable property for half of what you are paying to own, then short sell or walk away and go to the rental instead. Whatever you do, read the document on your HELOC and understand what will happen to it if you decide to stop paying. Good luck. And, let's hope you live to age 88 or longer, even if it means you are still paying for housing!