September 19, 2012
When you are buying a home, you typically focus on certain things like the location, whether or not renovations are required and the overall cost. When you own a home, you may be thinking about paying down your mortgage faster, relocating or even refinancing. In either scenario, do you ever think of penalty costs? If you are a home owner, or in the process of buying a home, decisions you make on your mortgage can cost you a lot in unforeseen penalties.
Add money to their mortgage
Add a line of credit
Refinance to get a better rates
Increase the amortization
Port their mortgage to a new home, or
Discharge it outright.
Incidentally, the industry prefers that mortgage penalties be called “prepayment charges”. That’s because these charges aren’t supposed to penalize a borrower. They’re supposed to compensate your lender for very real costs it incurs when you pay off your mortgage before agreed (source: Rob McLister, canadianmortgagetrends.com).
In order to avoid these “prepayment charges” (a.k.a. penalties), home buyers or home owners need to set out a plan and ask themselves certain questions:
How many years will I live in this house?
How much equity do I need to take out of my home?
How much dispensable income can I put toward my mortgage weekly, biweekly monthly and annually?
Should I choose an open mortgage?
And so on.
When applying for your mortgage, have answers to these questions ready so thatyour mortgage specialist can better assist you in getting the right solution that fit your needs. This will help you avoid (or at least reduce) penalties.
For those in the military, make sure to ask for the “military clause” or a shorter mortgage term. As relocation might arise, the military clausewill protect you from having to pay more than three months’ interest. Three months’ interest is always safer (and less costly!) than paying the interest rate differential (IRD). At Mortgage Force we maintain that the best rate is not always the best solution for your needs. We encourage home buyers to avoid choosing a mortgage based on the rate; instead you should pick a package that will benefit your needs and interests. Through Mortgage Forces, we will ensure that you get the best solution and save money.