When it comes to mortgages, interest rates are often the first concern. Although the rate is an important piece of the mortgage package, more people should be concerned about the options and penalties that are associated with the mortgage they choose. Not all lenders offer the same thing. With the increasing number of lenders, it is important to understand what differentiates them and their offerings. Some lenders will offer you great rates and put limitations on your mortgage, while others will offer you great options but limit your discounts on the rate. It is up to your mortgage professional to educate you on what they offer, and it is up to you to educate yourself on how it may affect you and your financial future.
collateral chargeA mortgage product you need to familiarize yourself with is a ‘collateral charge’. A collateral charge is a program where the bank can help you access equity as it builds in your property. This can be used as a great tool, but it can also put a stranglehold on your ability to switch out of the mortgage at renewal, or before renewal if a better or different option comes along. It is a wonderful product for the bank, but may not be the best for you moving forward. This is a great example of why you need an experienced professional to help navigate you through your mortgage options.
low rate deals‘Low rate deals’ are something you need to be aware of. More often than not, you get what you pay for. A lot of low rate deals will get you amazing rates, but you may have to sacrifice payment frequency, ability to make extra payments, or incur a large penalty if you choose to move or payout your current mortgage before the term is up. A mortgage is not just a mortgage and all lenders are not the same. There are a lot of different ways to structure a mortgage to maximize principal payments, reduce interest cost and develop a program to grow your real estate portfolio.
Some helpful questions to ask your mortgage professional…
- Can I make extra payments? If so, how often and how much?
- What is my penalty going to be if I pay my mortgage off before my term has ended?
- (Ensure that they know the difference between the standard options – three months interest penalty or interest rate differential – and which one applies to your mortgage)
- Is my mortgage portable? Can I move it to a new property if I move?
The answers may save you thousands of dollars!
If you have any questions, please feel free to contact Andrew Young