Mortgage clients constantly tell me, “I need the best mortgage rate. What rate do you offer?”
While the client is always right, and we always provide the best rate and terms, we do convey the importance in considering the “extras” when selecting the best mortgage.
Extras include such items as prepayment privileges. Prepayment privileges (the amount you are allowed to prepay on your mortgage without penalty) vary from 10 to 20 per cent depending on the lender. If you have a mortgage of $300,000 the difference in a prepayment allowance can be huge.
The lender with the 10 per cent option will only allow a prepayment (penalty free) of $30,000 while the 20 per cent prepayment option allows you to pay up to $60,000 without penalty. The savings there are huge.
Another option to consider is the ability for missed payment flexibility. We all do not want to be in a situation such as that but if we were it is comforting to know the option is there.
The ability to port a mortgage is equally important.
If you chose a mortgage that is portable if you were to sell your home and purchase another prior to your term being fulfilled, you can port your mortgage to the new home without paying a penalty.
The lender will treat the new home as a new application and it must meet their requirements but your existing term will remain and no penalty will be levied. If the mortgage on the new property is less than what your current mortgage balance is you would pay a penalty on the portion of the mortgage you are reducing it by.
As an example, if your mortgage was $300,000 and you only require a mortgage of $250,000 on the new property, you would be assessed a penalty on the difference of $50,000.
If your mortgage is to increase all remains the same on the existing and the new money only is charged at current interest rates.
Another option to look for is if your mortgage is assumable. An assumable mortgage means the mortgage can be transferred to another borrower.
It allows a purchaser to, upon qualification, take on your mortgage terms and payments as part of the sale of your home. In this situation there would be no interest penalty assessed to you.
We still tend to be attracted to the lowest mortgage rates and it is when you do the math, the relative importance of the “extras” become clear. A .25 per cent savings on the typical five-year $200,000 mortgage amortized over 25 years equates to $25.84 per month, or $2,363.69 over the five-year term.