Penalty calculations, porting restrictions, refinance limitations, fully closed terms, appraisal fees and collateral charges, does this all sound confusing, complicated and, well, costly?
The terminology of buying a house can be difficult to navigate, for most people it’s a whole new language. Perhaps the most frightening phrase to come across in the mortgage lexicon is mortgage penalties.
Many mortgage lenders offering low interest rates catch borrowers with heavy penalties. Unfortunately, it is not always easy to determine what the penalties will be because the language can be vague, and there may be many variable circumstances to take into account.
So what are mortgage penalties?
These, often overlooked, charges are penalties paid by the mortgagors who break their contract before the end of the maturity date, which is the last day of the current mortgage term contract.
The amount of this penalty is determined by either a three-month interest penalty, or the interest rate differential, (IRD).
The three-month interest penalty is limited to three months of interest and is applied to variable-rate mortgages or fixed-rate mortgages that are five years or more into a term that is greater than a five-year term.
The interest rate differential is based on the amount left on your mortgage that you are prepaying, and an interest rate that equals the difference between your original mortgage interest rate and the current interest rate the lender can charge when relending the funds for the remaining term of your agreed upon mortgage.
Many fixed-rate mortgages include a penalty clause that states the amount of the penalty will be based on the greater amount of either a three-month interest penalty or the interest rate differential (IRD).
Does this sound convoluted? It is and most people don’t have the time to research the small print and variable terms, that’s when it pays to hire a professional mortgage broker.
There is so much more to buying a house than just getting the best interest rate.
The good news is that most terms, interest rates, insurance policies, and even penalties can be negotiated. The process is complicated; the terms of a mortgage depend on multitude of factors ranging from income and credit history, to occupation and lifestyle. A local, Kelowna, mortgage broker can help you navigate the many options available to you and negotiate the best mortgage terms. We’ve compiled a few tips to help you understand some of the areas to explore before signing your mortgage contract.
Mortgage Shopping in Kelowna Tips
- Any borrower approaching a bank for a mortgage will be offered the standard posted interest rates, however, banks and bankers also receive daily discount rates known as the grid. The grid states the highest discount amount a bank can offer on up to ten-year rates.
- In addition to sourcing the best interest rate, take some time to investigate how much you can prepay each year without being charged a penalty.
- Find out if there are restrictions on refinancing, such as when you can refinance, or if you can extend your mortgage term without penalty, or if your mortgage is readvanceable.
- If you are thinking about a variable rate mortgage, ask if there are any restrictions that may prevent you from porting or blending your rate. Ask if you can fix your payments to ensure your payments stay the same even if the rates increase.
- Explore the options of hybrid mortgages. This will let you fix part of your mortgage into a fixed rate, while others parts float at a variable rate.
- You can also check into mortgage amortizations, which can range from 18 years up to 35 years.
- You might find that even simple benefits that you take for granted aren’t always on offer, for example some lenders don’t offer online prepayment access.
- And you absolutely must have a clear understanding of the mortgage terms if you decide to sell your house before the mortgage contract ends.
These are just a few areas that can be negotiated with mortgage lenders. Most house-buyers trust that their bank is the best place to go for information on a mortgage, but this is not always the case.
Remember, a bank is a business, and the goal of any business is profit. A bank won’t shop around to find the best deal for you, whereas finding the best mortgage is the mortgage broker’s priority.
Canada has over 300 mortgage lenders, they all offer various terms and rates, and they should all be open to negotiations, but if you don’t know what to negotiate how do you secure the best terms?
That’s where we can help. At John Antle Mortgages, it is our job to find you the best interest rates, the best mortgage terms based on your lifestyle, and the most secure financing options available to you.
Mortgages are our area of expertise. Contact our Kelowna mortgage brokers today and let our years of professional experience in investment consulting, financial planning, and mortgage consulting work for you. Our goal, and the success of our business, is based on brokering the best mortgage for you.
JOHN ANTLE MORTGAGES –KELOWNA’S MORTGAGE SPECIALIST
We specialise in offering mortgage solutions that go above and ‘beyond the bank’. This means we are able to provide flexible solutions at great rates, often better than what traditional banks have to offer. Working with a mortgage broker can open up your options, allow for potentially greater solutions for your situation. We work with a variety clients including first-time buyers, those looking to transition from renting to owning, self-employed business people, as well as investors in rental and/or vacation properties.
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