The Interest Savings Module estimates how much a client could save (or lose) in interest through a direct switch or refinance of their current mortgage balance.
Here's how the analysis works step-by-step:
1. Eligibility Check: Ownwell first determines if the client is eligible for a mortgage switch or refinance, based on the client’s loan-to-value (LTV) ratio, which must be 95% or less or 80% or less, respectively. The LTV is calculated using the current estimated value of the property and the outstanding mortgage balance.
2. Finding the Best Rate: If eligible, Ownwell searches Lender Spotlight to identify the lowest available rate for a switch and the lowest available rate for a refinance. It then selects the lower of the two. The search criteria include:
A term length equal to or greater than the client’s current term.
Factors such as income, credit score, debt payments, housing expenses, and insurance status.
Important Note for Alt/B Clients
If the Client's Current Lender Is Determined To Be Alt/B: Ownwell infers if a lender is “Alt/B” based on its name in the “Current Mortgage” section of the Client Details page. If we determine it’s Alt/B, Ownwell only considers Alt/B lenders for the Interest Savings analysis.
If the Client's Current Lender Is a Bank, Monoline, or Credit Union: Ownwell does not restrict which lenders it considers. This means you’ll see the lowest rate available from all lender types.
3. Qualification Check: Using the identified rate and the income, debt payments, and housing expenses on file and the max GDS and TDS ratios (set to 39% and 44%, respectively), Ownwell confirms whether or not the client would qualify for the new mortgage.
4. Interest Savings Calculation: Using the identified rate, Ownwell estimates the total interest that would be paid over the same remaining term of the client’s current mortgage.
5. Prepayment Penalty Estimation: Ownwell calculates the estimated prepayment penalty for breaking the current mortgage. This calculation considers:
The type of rate (fixed or variable).
The type of lender (e.g., banks use a different method to calculate the Interest Rate Differential (IRD) compared to monoline lenders).
In some cases, the specific lender’s approach (e.g., Equitable Bank uses T-Bill and Bond rates as reference rates instead of a comparable mortgage rate).
The IRD calculation relies on identifying a comparable rate that the lender of the existing mortgage would offer for a term closest to the remaining term. If this information is unavailable - such as when lenders do not disclose all their rates in their rate sheets - Ownwell estimates a comparable rate based on factors like the term length, rate type, and lender category.
6. Comparison of Costs: Finally, Ownwell compares:
The total interest costs of the existing mortgage.
The total interest costs of the new mortgage (at the lower rate) plus the prepayment penalty. This comparison determines whether switching or refinancing would result in savings or additional costs for the client.
By combining these calculations, the Interest Savings Module provides a clear picture of the potential financial impact of switching lenders.