By Barb Ten Bos
1. How the penalties are calculated if I break my mortgage early?
Specifically, ask what rate they use to calculate the “interest rate differential”. Typically, if the lender has “posted rates” they use these to calculate the penalty. If this is the case, the penalty can be three, four or even five times higher than a mortgage lender that does not have posted rates and uses them in their early payout penalty calculation. This one question can save you thousands of dollars!
2. Is this a “collateral” mortgage?
Some lenders have recently started putting all of their mortgages into what is called a “collateral” charge. In the right situation, given significant equity in the home, this product can be very useful and advantageous. The disadvantage to this product however, is that you cannot “switch” it to another lender at maturity. You have to actually discharge this type of mortgage and re-register a new one with a new lender which will cost on average $1,000 for legal fees and appraisal costs. Beware of lenders who do this, especially if your mortgage is high ratio because it is only useful if you have more than 20 per cent equity.
3. Can I “blend and extend” my mortgage if I buy another house?
Most variable rate mortgages cannot be “blended” however, typically the penalty to break a variable is three months interest. Some lenders have changed their policies (very quietly)—instead of allowing you to add new money to a mortgage in the event of a new purchase, they require you to pay the full penalty. Some clients have been caught off guard by sneaky lenders who don’t tell them this until only a few days before close, at which time it’s too late to switch lenders.
4. What happens to my life insurance if I switch lenders at the end of my term?
This is a very commonly overlooked detail by those who take the insurance offered by their bank or lender. The challenge is that if you want to “switch” your mortgage to another lender at the end of your term, you have to reapply for insurance. The downside to this is that you’ll be five years older, and if you have developed any health issues, you may not qualify for the insurance at all. Getting insurance that mortgage brokers offer stays in place for the whole time you have your mortgage, no matter who your mortgage lender is.
5. What happens at the end of the term (typically five years)?
Will they offer you the best rate they offer their new clients, or will you have to negotiate for best rates at that time. Most banks know that clients likely won’t make the effort to negotiate the best rates. Working with an independent specialist will provide you with the most competitive rates, not only when you buy your home, but when it comes up for renewal. A qualified professional will make sure you have the best options available.