New Year, New Mortgage? Maybe it’s time for a change

Pro Tips by Kristi Sauter

The beginning of the year is a great time to start reconsidering your mortgage. Maybe your mortgage is up for renewal this year, or maybe you want to capitalize on the low interest rates and refinance. Whatever the reason may be, there’s no time quite like the present.

Weighing your options

When shopping for a mortgage, interest rates are not the only thing you should pay attention too. There are other elements of homeowners need to keep in mind to ensure they are selecting the best financial product.

Penalties

A mortgage is a contract between two parties, a borrower, and a lender. If the borrower breaks the contract (selling the property before the end of the mortgage term) the lender may impose a penalty for lost interest payments. Penalties can be calculated differently depending on the institution or the type of mortgage, so it’s important to understand these ahead of time.

Breaking a mortgage isn’t something most of us plan on doing, but life happens and sometimes we need to move sooner than we had planned. A job transfer or the birth of a child, these things happen and it’s important to understand what that means for your mortgage.

Prepayment Privileges

Typically, there are two types of mortgages that are offered, open or closed. An open mortgage can be prepaid in partial or in full during the term of the mortgage without having to pay a prepayment penalty. The interest rates on these types of mortgages are often higher than that of closed mortgages because of this flexibility.

Closed mortgages cannot be prepaid, renegotiated, or refinanced before the end of the term of the mortgage and if you chose to do so you will incur prepayment penalties. There are ways to pay down closed mortgages faster, for example, you can make lump sum payments that can be set at 10% or 20% of the original mortgage amount. This same privilege goes for increasing your mortgage payments, most lenders will allow for your monthly payments to be increased by 10% or 20% to help expedite your mortgage repayment.

Clauses

Some lower interest rate mortgages include a “no port option”. In this scenario, you can’t take the mortgage with you to another property well you sell your home during the term. Having a portable mortgage allows you to transfer your mortgage balance to a new property, with the same lender, without penalties, thus avoiding many costs associated with purchasing a new mortgage.

There are a lot of things to consider when shopping for a mortgage, but an expert is here to help you navigate all of these scenarios.