Interest rates are at a historic low. Is this the time to re-negotiate your mortgage? The answer is a resounding, “maybe“.

The basic rule of thumb is if you are paying more than 5% interest then you should definitely check in to it.  With a five-year fixed rate currently hovering around 3.99% the savings can be substantial, both in terms of monthly payments and the total interest paid out over the life of the mortgage.

The party spoiler comes in the form of a penalty mortgage companies charge you to break your contract. It is called the interest rate differential, or IRD.  In years past the homeowner would simply pay three months interest to get out of their mortgage. Unfortunately those days are gone.

Today, most lenders charge a penalty based on the number of months left on the mortgage, the outstanding balance; the difference between current and past interest rates, and other factors. These calculations are complicated and differ between lenders so you have to obtain the penalty figure directly from your current mortgage holder. But don’t be surprised if your penalty in somewhere in the $15,000-$20,000 range.

Once you know the penalty you can make inquiries with competing lenders. Alternately, you can try to re-negotiate with your current mortgage holder. As surprising as it might seem, lenders are lending and many are competing aggressively to win good quality mortgage business.  Don’t be afraid to shop around – some lenders will pay you to switch from your current lender by covering legal, appraisal and discharge fees and by providing creative ways of covering the payout penalty.

So who is re-mortgaging these days?  Some are homeowners who want to reduce their monthly payments and their interest rates.  Others are looking to renovate. (There is reportedly a recent 69% increase in home renovations fueled in part by tax incentives).  And the brave ones are looking to free up some equity in their existing home to pick up condos at reduced prices for investment purposes.

Keep in mind that lending criteria might have changed since you last took out your mortgage and you might need to re-qualify. This might be a problem if your employment circumstances have changed.  Also remember, that you will probably need a new appraisal of your house – another potential deal breaker if it has lost value in recent months.

There are no hard and fast rules when it comes to re-mortgaging. Lenders emphasize that that they look at every situation on a case-to-case basis. There are deals to be had – check out the numbers to see if they work for you. – Karin Mizgala

Karin Mizgala is a Vancouver-based fee-for-service financial planner with an MBA and a degree in psychology. She’s the President of LifeDesign Financial and co-founder of the Women’s Financial Learning Centre.