Martin’s Mortgage Maneuver Explained

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Have you heard of Martin’s Mortgage Maneuver? It’s sometimes referred to as Martin’s Money Mortgage. Essentially, it’s a loophole that allows you to avoid the insane fees that banks charge when you break your mortgage. Funny enough, the calculation used by banks to come up with your penalty is a loophole itself since it uses posted rates. Martin’s mortgage maneuver is a loophole of a loophole.

Martin Hastings first posted the trick on his personal website and Reddit. then picked it up. It’s gotten a lot of attention as of late, as it’s a legit loophole that can save you thousands of dollars. Although it doesn’t work with every lender, it’s worth looking into if you need to break your mortgage for any reason. Here’s how Martin’s Money Mortgage works.

Martins Mortgage Maneuver

What is Martin’s Mortgage Maneuver?

Whenever you need to break your mortgage, you usually need to pay a fee of either three months’ interest or the interest rate differential (IRD). Most major lenders (such as the big 5 banks and credit unions) will typically charge you the IRD since it’s a bigger penalty. This fee is insanely high since the posted interest rates are what’s used to determine your penalty. This is ridiculous since the published rates are always significantly higher than the real mortgage rates that people get. For example, the 5 year fixed rate might be posted at 5%, but you could easily get it for 2.5%.

Many people who get a fixed-rate mortgage assume they won’t be selling during their term, but a lot can happen in five years. You might decide to move. There could be a job loss. There could have even been a significant drop in interest rates. You may just want to refinance and invest the difference. For you to break your mortgage, you’d have to pay the crazy high IRD. Note that monoline lenders typically use the three months’ interest penalty, so you wouldn’t need to use Martin’s Money Mortgage.

But here’s the thing. When you get a new mortgage, your IRD is $0. After six months from the time you signed, your IRD goes up significantly, and that’s where the fees kick in. With Martin’s Mortgage Maneuver, you would blend and extend your current mortgage. This would give you a new mortgage with an IRD of $0. You could then immediately break your mortgage and sign up for a new one at a lower interest rate. Alternatively, you could sell your home and pay the balance. Either way, you would save thousands, possibly tens of thousands of dollars.

How to do Martin’s Mortgage Maneuver?

Before you dive into Martin’s Mortgage Maneuver, there are a few things you need to look into. First off, you need to check if it’s even worth it to blend and extend your mortgage. In most cases, it’s only beneficial if the current fixed-rate mortgages are lower than what you have. For example, if your mortgage is at 3%, but current rates are 1.5%, it may be beneficial to switch. To find precisely how much you’d save with the lower rate, you can use an online mortgage calculator. Even if you have to pay the penalty, you can often save in the long run.

Next, you’ll want to check with your original lender to see if you’re able to blend and extend your mortgage. If you’re allowed to do so, you want to confirm that the new mortgage will reset your posted rate to the current posted rate. This is vital since the posted rate is used to calculate your IRD when you break a fixed mortgage. Note that finding a way to reset your posted rate is the most essential part. Not all lenders will blend and extend, but there might be a different way to refresh your posted rate. Once confirmed, sign for your new mortgage.

As soon as this is done, get approved for a new mortgage at a different lender. Who this new lender is with doesn’t matter. Presumably, during your research into how much you could save with current rates, you already found a lender that you want to go with. Since you’ll have a new mortgage approved, you can break your mortgage with your current lender and then transfer your mortgage to the new bank. You would end up paying three months’ interest as your penalty since the IRD is either zero or negative.

It comes down to the wording in your mortgage contract. There’s nothing illegal about Martin’s Money Mortgage since you’re doing what’s allowed in your agreement. If it says you can blend and extend your mortgage and your posted rate resets as a result, then you’re good. Just because you decide to break your mortgage a week later is irrelevant. You would just be paying the penalty based on the new terms.

That said, not every lender uses the new posted rates when you blend and extend. Some will continue to use your old rates, which effectively eliminates the possibility to do this trick. I haven’t checked with each lender, but so far, there have been reports of Martin’s Mortgage Maneuver working with Scotiabank, Meridian, and TD. 

Since this loophole has been gaining a lot of traction, I do not doubt that many lenders will be introducing language into their mortgage contracts that specifically prevent you from doing this trick. If you’re interested in performing Martin’s Mortgage Maneuver, you should probably work with a mortgage broker who is familiar with the process.

Is a variable rate better?

Here’s the funny thing about Martin’s Money Mortgage, it only applies to fixed-rate mortgages. If you had a variable rate mortgage, your interest rate would drop when the overnight rate falls. On the flip side of things, if rates increased, so would your payments.

It’s been proven over time that homeowners who go with variable rate mortgages over fixed come out ahead about 80% of the time. However, with interest rates being at all-time lows, many people have been going fixed. I got a mortgage for 2.49% in 2016 and went fixed because I thought there was no chance it could lower. In 2020, there were rates in the 1.50% range, so anything is possible.

How to calculate interest rate differential?

Although calculating your IRD may sound complicated, it’s a straightforward formula.

Interest rate differential (IRD) = Outstanding mortgage amount * years left on mortgage * (your mortgage rate – your lender’s current rate).

What gets complicated is the definition of your mortgage rate. As mentioned, banks have posted mortgage rates. This is their official mortgage rate. However, that number is inflated and no one ever pays that. What you’re actually paying is the bank’s discounted rate. If the posted rate was 5%, but you signed for 2.5%, you received a discount of 2.5%

The lender’s current rate is a bit annoying since they subtract the discount you received from their current posted rates. That current posted rate needs to be similar to what you’ll have on the day you break your mortgage. For example, if you have four years remaining, they would use the 4 year posted rate.

To keep things simple, you should use a mortgage penalty calculator to find out exactly what your IRD would be. Preet Banerjee also created a video of how IRD works since I’m sure your head is spinning. 

Which lender has the best mortgage rates?

The lowest mortgage rates are constantly changing. When you blend and extend, you have to do it with your original lender to reset your posted mortgage rate. However, when you switch lenders, you can go with anyone. Each lender will need to qualify you like a new client, but you’ll likely be approved since you already have a mortgage. All you’re really doing is porting things over. 

Finding the lowest rates is pretty easy these days. Instead of relying on posted rates, which you now know is inflated, you’re better off using a mortgage broker that can price compare for you. I’ve personally used Breezeful since they compare 30+ lenders online so you can quickly find out who has the best mortgage rates.

Is it possible to pull out equity when refinancing?

Technically yes. If you built up some equity, you could technically be paid that in cash when you port your mortgage to the new lender. It’s not like it’s free money. The amount you’re getting gets rolled into your mortgage. You’re essentially unlocking equity with a low interest loan that’s rolled into your mortgage.

What you do with your money is up to you. Some people will use it for renovations, vacations, or even investing. That said, if you plan on using the funds to invest, you’d likely be better off using the Smith Maneuver

Is Martin’s Mortgage Maneuver worth it? 

Listen, anytime you can lower your fees, you’re coming out ahead. With mortgages, I don’t think I need to explain why paying $3,500 is a lot better than $25,000. Wouldn’t you rather have an extra $21,500 in your pocket?

The same applies to the management expense ratio with mutual funds. Why pay an average of 2.5% in fees when you can become an index investor and pay less than 1%? Any money you save goes back into your pocket. I don’t care what it is. If you can save money with little effort, you should do it.

About Barry Choi

Barry Choi is a Toronto-based personal finance and travel expert who frequently makes media appearances. His blog Money We Have is one of Canada’s most trusted sources when it comes to money and travel. You can find him on Twitter:@barrychoi

1 Comment

  1. AnotherLoonie on May 17, 2021 at 11:06 PM

    Such a great strategy. Unfortunately my lender (TD) is one of the few that prevents this maneuver from being worthwhile. Otherwise, I’d love to swap my mortgage for a 1.5% or better fixed rate!

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