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My name is not Elaine
Don’t renew that mortgage . . . until you’ve learned about the following.
Is your mortgage coming due in the next few months?
When your mortgage is up for renewal, it’s a good idea to talk to me or to your regular mortgage broker about your options.
It is a paradox of our times: When there is a large sum of money to invest, most people don’t hesitate to contact a financial planner. A mortgage is probably the largest debt you will ever have, yet only about 25-30% of mortgagees consult a mortgage expert.
Many people just sign their mortgage renewal and send it back to their bank without even checking the current mortgage rates offered by brokers. Brokers represent many borrowers, so they are usually able to get more competitive rates for their clients.
However there are more important considerations when renewing a mortgage, such as prepayments options and penalties.
Lenders who are offering low rates on the Internet will often restrict the amount of principal that can be paid down on the mortgage during the locked in term. This can cost the borrower thousands of dollars in interest costs.
Many of my lenders offer anywhere from 10-20% repayment options, and 10-20% in payment increases. I usually suggest that my clients try to utilize these options to save them thousands of dollars over the life of their mortgages.
Another consideration are the payout penalties.
While most borrowers don’t select a 5 year closed mortgage expecting to pay it out before the mortgage is due, statistics show that most mortgages are refinanced or paid out within 3-4 years. This can cost the borrower thousands of dollars in interest penalties.
Did you know that some financial institutions calculate the Interest Rate Differential (IRD) using the posted rate at the time the borrower took out his or her mortgage rather than the discounted rate they received?
I, myself, was charged the posted rate on my mortgage when I paid it out, base on the posted rate at the time I locked in rather than the discounted rate shown on my mortgage commitment.
This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.
