Questions to ask before breaking your mortgage
Very low mortgage rates have tempted many of us to break our mortgages, but is it always worth it? The key question one must first consider is how much it will actually cost us? It’s something you should look into before completing your mortgage initially. Here are 5 questions you should ask before breaking your mortgage.
What are the penalties?
You should know what the penalties could be before you initially get your mortgage. In some cases it can be hard to know an exact amount, but you should have an idea of how it’s calculated. We might think it’s unlikely we’d ever break out mortgage, but surveys suggest that up to 10% of Canadians will refinance before their term is up.
Alternative to breaking your mortgage if you are 55+
If your aged 55+, You may benefit from Canada is national equity release program also known as a reverse mortgage in the United States. Instead of breaking your mortgage with regrets you may live in your home mortgage payment free for life if you are occupying as your primary residence. Equity release schemes are not for all and should be carefully considered as your home’s equity position lowers overtime. Consult with your trusted advisor or speak to a HUD approved counseling agency.
Can the mortgage be ported?
For most Canadians the first home they buy isn’t always the last one. If you decide to sell your home, can the mortgage be transferred to the next property you buy? It’s an important question to ask because it is something that we are not usually thinking about when we first took out the mortgage initially.
Are you tied to your lender?
Some mortgages cannot be broken within the term unless you sell your home. This is important to know since if you were trying to break your mortgage to refinance or to get a lower rate from another lender, you’d be unable to do so.
What are the pre-payment options on your mortgage?
Many lenders will allow you to pay a lump sum on your mortgage, which would thereby lower the penalty for breaking any term left.
How will the interest rate differential be calculated?
This is likely the most important factor. If the lender uses a posted or qualifying rate which is different than the promo rate you initially received, it could end up costing you much more than you might think. Inside of your mortgage agreement will provide you with the proper information to make the calculation.
The Bottom Line
When first agreeing to your mortgage, the penalties for breaking it aren’t the first item you think about but it should have a factor. Should you have any questions about getting pre-approved for a mortgage, or refinancing your current mortgage, feel free to contact me.
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Anthony M. Talarico
Financial Security & Investment Representative
W: (807)343-4788 ext. 4248