With interest rates dropping, a new or refinanced mortgage might make sense. But hefty fees could make the math not work

TORONTO — Interest rates are dropping, but many Canadians are still feeling the hangover of the highest lending costs in a generation.

For those stuck paying elevated mortgage rates, or who want to cut high-interest consumer debt, breaking a mortgage contract could make sense. But experts say borrowers need to watch out for what could be hefty fees.

The draw of refinancing comes as discounted fixed-mortgage rates have fallen from around 5.49 per cent last October to rates now being offered at just under four per cent for the most qualified borrowers, according to RateHub.

Securing that 1.5-percentage-point drop on a $400,000 mortgage balance would save about $338 per month. Reducing the interest rate on a $10,000 credit card balance from 20 per cent to four per cent would, roughly speaking, push monthly interest payments down to $33 from $167.

The potential savings come as both the Bank of Canada and the United States Federal Reserve have started lowering rates for the first time in more than four years, now that inflation has subsided.

For those who locked in a rate near the peak, or who have had to add high-interest credit card and other consumer debt to manage through the cost-of-living crunch, it could pay to secure a lower rate or consolidate debt into a new mortgage, said Leah Zlatkin, a mortgage broker and LowestRates.ca expert.

“Certainly, there have been people who have acquired extra debt over the last couple of years and now that rates are coming down, it is an opportunity to refinance,” she said.

“Pay off some of those credit card debts that you’re paying out at, you know, 15 plus per cent, and put that into a mortgage instead.”

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