Mortgage update: Credit Union Edition

Cat yardSo it turns out I was only kidding a month ago when I said our mortgage renewal was all lined up:

Unless rates plunge further this spring … our renewal paperwork is all set.  Which is great news for our marriage as for the past few weeks Shauna has been forced to endure an endless whirlwind of spreadsheets, amortization schedules, and rate tables.

Mortgage Renewal

For two glorious weeks this spring Meridian Credit Union offered an 18 month 1.49% special rate.  So we pulled those rate tables out again.  This negative real interest rate is the closest you can get right now to the bank paying you to take out a mortgage.

And take out a mortgage we did. I pestered the fine folks at Meridian every day until they approved our mortgage application, right as the special rate expired.

What’s awesome about this mortgage?

  • The rate is extraordinary. This short-term mortgage is essentially like a variable rate mortgage. The cheapest variable rate mortgages go as low as 2.10% right now. This blows the variable rates out of the water and saves at least $2,500 for every $100,000 borrowed when compared to a fix mortgage.
  • The mortgage can be converted to a longer-rate fixed rate mortgage without penalty.  Meridian lets you convert to the advertised rate on their site, which have always been pretty competitive.
  • It’s a fully featured mortgage.  When BMO introduced their special rate, they cut down prepayment privileges, but Meridian has the same great terms as their fully-featured mortgages.
  • We’re working with a credit union.  Credit unions are non-profit organizations, and ideally any profits generated go back to the members (us) in the form of better rates.

What’s are the down sides?

  • It’s hard to predict where rates will be in 18 months when the mortgage renews.  However, rates would have to go up substantially to eliminate the savings after the switch, assuming we don’t lock in earlier at a favourable rate.
  • The legal and mortgage discharge costs to switch to Meridian are about $1,300, and there’s a chance we may need to pay the same fees again if we switch from Meridian in the future.  In our case we had to add Shauna to the mortgage paperwork, so we would have to pay these fees regardless.
  • We are trying to time rate increases (which is generally a poor idea), and as this excellent article points out, we may be one of the families who “will learn what it’s like to run their house like a hedge fund.”
  • Shauna will be bombarded with additional amortization tables every few months until we lock into a longer term.

We’ll figure out in a year or so whether this move was worth it. By then we’ll be mostly through with paying for daycare for Devon, so the lower rate in the meantime will definitely help.

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