Thursday, April 7, 2011
Penalties When Breaking A Closed Mortgage
Why banks want you in fixed rate mortgages
This article in Moneyville in the Toronto Star, is a great piece about the mortgage penalties associated with breaking your closed mortgage, an issue that is very prevalent today. Most clients don’t anticipate the high amounts that they have to pay out in penalties when they decide to refinance or sell their homes, as these numbers are not standardized across the different lenders, nor are these figures disclosed at the time of signing.
Banks have always encouraged clients to go into five year fixed rate mortgage terms, yet the average time a Canadian will stay in a fixed mortgage term is 3.4 years. Now we know why the banks profit billions a year even during recessions and “credit crunches”.
As a homeowner or home buyer, keep the following tips in mind when shopping around for a mortgage or if you are considering refinancing your property:
- Beware of closed or fixed-rate mortgages that will penalize you for leaving early. (Kristian Harris of Monster Mortgage advises a variable-rate or open mortgage).
- If you are adamant about taking a fixed mortgage, consider a 3 year term instead of the bank-promoted 5 year term. The future is uncertain and tying yourself up in such a long commitment can result in big penalties when you decide to break your mortgage.
- Know your numbers! Find out if the rate that you’re being offered is a discounted rate and make sure you are aware of how the Interest Rate Differential (IRD) is calculated.
- Take advantage of your pre-payment options and apply these to your mortgage before it gets discharged.
There are so many questions when applying for a mortgage. Talk to a mortgage agent to find the best mortgage strategies that will reduce the IRD penalty that you will have to pay and get you the right product that will help you pay your mortgage off faster. Your mortgage specialist will take you through the payments and how best to pay off your mortgage in the most efficient manner.
Because you have choices, you need to make sure to get as much information as possible so that you can make an informed decision as to the mortgage that is right for you. Talk to a mortgage specialist. Need a name? Call me directly at 416 427 1875 and I will direct you to a few numbers and you get to choose who will provide you with the best service. Remember, the choice is yours!
Betty Bartusevicius, Sales Representative
RE/MAX Realty Specialists Inc., Brokerage
905 828 3434
Web Site: http://www.bettybart.com
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