Real estate is a still a hot commodity in many parts of the country, and it’s also a competitive market. Prices are rising and listings are in short supply. And everyone wants your business — from Realtors to mortgage lenders. It’s important to understand the features of a mortgage and make sure it fits with your goals. Take a look at some of the features you might consider:
Blend and Extend. Many lenders offer this feature, which is simply a blend of your existing rate with the now current rate. It may also mean extending your current maturity date as well. Depending on your situation, you may want the flexibility this feature offers. If your current lender doesn’t allow a change in the maturity date, then you’re locked into the remaining time left on the term. While that’s not the end of the world, in a rising rate environment this can be extremely inconvenient. If you’re moving up, and buying at your maximum loan-to-value, you may not want just a 1 to 2 year term.
Early Payout Penalty Calculation. Different Banks calculate their IRD (interest rate differential) penalties differently. The IRD is a compensation charge that may apply if you pay off your mortgage prior to the maturity date, or pay the mortgage principal down beyond the amount of your prepayment privileges. It’s important to understand how your early payout penalty would be calculated. Some chartered Banks are known for their extremely large IRD penalties. Most closed fixed-rate mortgages have a prepayment penalty that is the higher of 3-months interest or the IRD, while variable-rate mortgages do not have IRD penalties. If you don’t know you’ll keep the mortgage for the entire term then make sure to understand the fine print in your mortgage documents, especially as it pertains to the payout penalty.
Mortgage Registration. Is the mortgage registered as a non-standard charge, either a running account, or a collateral charge? If so, then it becomes harder to switch this mortgage out to take advantage of lower rates. Consider this scenario: If the lending institution knows you will have to incur $1,000 or more in possible costs, as well as put in the time and effort to complete a refinance with another lender, then there is less incentive to offer you best rates at renewal time when a small rate reduction might be enough to keep your business.
Pre-Payment Privileges. Is the lender offering 15/15, or 20/20? That means allowing prepayments of 15 % or 20% annually on the outstanding balance of the mortgage. It also means allowing you to increase your regular payments by up to 15 or 20%. Also, can these lump sum payments be made during the year or only at the mortgage anniversary? And how easy is it to make lump sum payments? Do you have to go into the branch, call a 1-800 number? Or can you simply go online and do it. These are important factors to consider.
Porting Features. This feature, which allows you to keep your mortgage if you move properties, can vary from lender to lender. This is an important factor if you think you might move before the mortgage maturity date.
- Online Access. All of the chartered Banks offer online access as do a number of mortgage banks. Generally online access allows you to see your balance, make additional lump sum payments, or make a payment increase. This can be a time-saving feature for tech-savvy consumers.
Yes, there is more to getting a mortgage than just rate. Call me today and get help navigating mortgage features and find the best for you.
Guy Ward is a Mortgage Broker in Calgary, Alberta with TMG (The Mortgage Group Alberta) and can be contacted at WWW.GUYTHEMORTGAGEGUY.COM