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More Than Just Rates

 

There is so much more to a mortgage than a pretty rate.  Mortgages have so much more to offer:

Flexibility.  We want to make sure that your mortgage has portability.  Portability allows you to take your mortgage and plop it onto a new property.  This is especially important when you sign up for a super low fixed rate and then you decide to move. You best be taking that sweet mortgage along with you.  We can transfer your existing mortgage to your new place.  We also want it to be assumable.  Assumable means that you can have someone take over your mortgage.  This means if you’re selling, you can have the buyer assume your mortgage.  This works out to be an attractive feature while rates and mortgages are so nice and low.  This is an incentive to potential buyers as the payments are guaranteed to stay low for the remainder of the term.

Pre Payment Privileges.  Pre-payment privileges are certain amounts that the bank will allow you to put toward your mortgage without paying a penalty.  They can be anywhere from 15% all the way to 30%.  You can drop a lump sum at one time during the year and/or increase your payments up to a maximum of the allowed percentage.  This is especially handy for people with low interest rates; which should be everyone.  You can set your payments higher than what you’re being charged and the difference will go straight to your principal.  I have many clients that have kept their payments as high as posted rates and have since paid off over 10 years of their mortgage in a matter of a few years.  It’s pretty awesome.  You can also throw in a balloon payment at one time during the year but to a maximum of the allotted percentage. You should be setting your payments to slightly higher than what you are paying.  You will pay your mortgage down in no time.  You also want a lender that has a good customer support staff that will be able to facilitate all the various changes to you mortgage.  Good help is so hard to find these days.  And be careful, many of the super duper low interest rate mortgages do not even have any pre-payment privileges at all. They call them “no frills” mortgages. There are some tricky buggers out there, I tell you.

Amortization.  This is always a touchy one for people of older generations.  It’s funny to tell people of the older generation that we used to have 40 year amortizations.  They shake their heads in sheer disgust and go back to churning butter.  40 year amortizations are okay, depending on what they are used for.  If they are used to simply qualify a person that has very little income, then me no like.  If they are used strategically, then she’s okay.  If you are self-employed and have sporadic income, longer amortizations are very helpful.  You can keep your payments nice and low but can take advantage of your pre-payment privileges and pay down you principal.  This effectively reduces your amortization.  With certain lenders, we can still do 40 year amortizations on loan to values of 80% or less.  How do you like them apples, grandpa?

Penalties. Every lender has their own way of calculating penalties.  Penalties are incurred when you break your current mortgage contract.  This is happening quite a lot these days. People are exploring the option of dumping their current mortgage and getting into something much more attractive.  That sounded kind of dark; almost like mid-life crisis.  But sometimes it’s reality, baby.  Because banks don’t want you to leave, they have figured out ways to make you stay.  And this is not by using guilt; it is by way of penalties.  They will charge you either 3 months of interest or Interest Rate Differential.  3 months of interest is a walk in the park.  It is literally 3 months of interest. This technique is usually charged when your current rate is lower than what the market rates are.  The Interest Rate Differential, on the other hand, sinks their claws deep into your back.  IRD is essentially the bank charging you for the amount that they are missing out when you pay back your mortgage.  So if your rate is 5% and the market rates for similar leftover term is 3%, they will want you to pay them the difference.  Some banks have trickier ways of calculating the IRD so that you pay even more than the basic market difference.  They compare contract rates with posted rates multiplied by Satan’s fingers, divided by your firstborn child.  Certain lenders make it actually impossible to get out of their mortgages unless you have a bonafide sale. Tricky buggers are at it again.

Conversion Rates or Lock in Rates.  This is for the people that have a variable mortgage.  Variable mortgages allow for you convert to a fixed term when you are good and ready.  This is nice because it gives you an option to lock in when you feel like you’ve had enough of the variable ride.  The trouble lies in the fact that some lenders do not give you the best possible rates when you lock in.  They will give you good variable rates initially, but when you go to lock in, they stick you with higher fixed rates.  The old bait and switch.