Posted by John Doe
Many Canadians don’t even think about mortgage penalties, as they feel confident that they won’t have to break their mortgage in the future. However, the future is uncertain, and a death in the family, a sudden job loss, or a sudden illness may necessitate a premature mortgage exit. Regardless of what the reason may be, Canadians may have to break their mortgage at some point, which also means they will likely have to pay mortgage penalties. Here, we provide some tips that can help you lower any mortgage penalties you may have to pay in the future.
Think About the Future
If you have not decided on what your next mortgage will be then you should take the time to determine where you think you will be in the next half-decade. Or, perhaps look into where you think you will be in the next three years instead. By doing so, you will have a better understanding of where you think you’ll be, financially, over the mortgage term; this will allow you to make smarter mortgage decisions from the outset.
If, however, you are still not certain, then opting for a variable-rate product may be your best option. If you decide to break your variable-rate product then calculating the mortgage penalty will be quite simple. Basically, you will need to pay 3 months worth of interest in the form of penalties.
Another option would involve porting your mortgage instead of simply breaking it. In other words, you can apply your current mortgage to your new home. By doing so there will be no prepayment charges to worry about, but if you were to add or reduce to the mortgage amount then you would be required to pay a mortgage penalty. Also, please note that the aforementioned option would only work if you were planning your move within the country.
Here, deciding on whether to go with a fixed or variable product isn’t the biggest issue. Instead, you should shop around to find the best deal for your unique needs as well as your financial situation. Also, comparison shopping should involve not just looking at the best interest rate, but also whether the companies you are considering going with offer prepayment benefits. You should also consider how their mortgage penalties are calculated, as it may help lower your mortgage penalty if you decide to break your mortgage prematurely in the future.
Begin By Thinking in Smaller Terms
Many Canadians get caught up in the shock and awe of brand recognition. However, in reality, it helps to not get caught up in the hype. Many of the most stable and active lenders in the market are not spending any money on product or brand advertising. Many such Canadian mortgage companies are not even concerned with being a reputable brand name.
Instead, they invest most of their efforts into forming enduring and cordial partnerships with reliable and independent mortgage brokers, and, by doing so, are usually able to offer very competitive rates. The aforementioned lenders are actually known as “mono-lenders” in the Canadian mortgage industry, and will usually offer terms that have less expensive mortgage penalties. In sum, we would recommend that you avoid buying into the hype of brand recognition—regardless of whether or not you have actually heard of the lender or bank in question. That is, bigger doesn’t necessarily mean better, so thinking in smaller terms may allow you to find a mono-lender that provides less harsh mortgage penalties in Canada.
Perform the Necessary Calculations
If you are planning on breaking your mortgage in order to get a better rate then you may want to perform the necessary calculations beforehand. To do so, you should call up your lender and ask them to calculate what your mortgage penalty would be if you were to break your mortgage contract today. You will then need to factor in all the other charges that you will also have to pay for breaking your contract with your bank or lender.
For instance, some lenders or banks will charge what is known as a discharging fee. At the lower end, you can expect to pay around $200. However, if you have a collateral mortgage, then the discharging fee may exceed $1000. If you plan on remaining with the same lender in the future or want to take out an equity line of credit then a collateral mortgage may be a wise option.
However, they will end up costing you more money down the line if you decide to switch to a different lender in the future or if you need to break your mortgage contract. In any event, once you have discovered what all the costs will be for breaking your mortgage you will need to add them to your calculations in order to get the real, total amount that you will need to pay if you decide to break your mortgage.
In sum, mortgage penalties in Canada are not something that you should underestimate or ignore. They can end up costing you thousands of dollars in fees if you are not prudent, so taking the necessary steps to find the best terms and options may save you money in the future if you decide to opt out of your current mortgage contract.
If you are a Canadian in need of some help in lowering your mortgage penalties or need more information on mortgage penalties and how they work in Canada, then we can help. We can be reached at 1-866-307-0747 if you would discuss your financial needs with our Canadian mortgage specialists. You can also learn more about the different mortgage options and types that we offer, as well as take advantage of today’s special rate, by visiting our website. At Mortgages, Mortgages we are strongly committed to going above and beyond the call of duty to become Canada’s mortgage authority.