Change Happens

These days so much attention is focused on rising interest rates and housing prices in flux.?Many of those commenting are focused on the first time home buyer, and these changes are important to them as well as those with mortgages up for renewal.

Today I want to focus on how the parts of your mortgage contract can affect you during other changes in your life.

Let’s start with the bono fide sales clause.?The what??If you took out “No Frills” mortgage to get the absolute best rate you may have a condition which says you CAN NOT break your mortgage except in the case of an arm’s length sale.?Not you may have to pay a penalty…but you may not break the mortgage, period. ?Where that affects you mostly is if you need/want to refinance…too bad.

Second is the pre-payment, or lump sum payment, clause.?Most conventional mortgages will allow you to make an annual payment of between 10% and 20% of the original face-value of your mortgage.?Why this is important is even if you can only pay a small amount, say $5,000, it can save you a ton of interest over the term of your mortgage.?There are many calculators you can find to show the effect of lump sum payments.

The other reason that is important is that if you need to break your mortgage before the end of the term, and more than half of you will, you can apply the annual amount to reduce your pre-payment penalty.

Your what??Pre-payment penalty.?I have written about this before because it could cost you a lot of money when you break your mortgage, even for legitimate reasons.?Many lenders, especially the chartered banks, calculate this penalty based on the TOTAL amount of interest you would have paid in the remaining term (i.e. a lot).?Variable rate mortgages and many of the other lenders Mortgage Agents have access to charge only around 3 months of interest (i.e. a lot less).

So we know things change…moves, divorce, job loss, and other life events.?Pretending it will not happen to you can cost you a lot of money.?So think about the exit before you enter into a mortgage contract.

I'm Steve Willson, a licensed Mortgage Agent with Mortgage Alliance. You can reach me through www.stevewillson.ca