In recent history we’ve seen some of the major banks offering clients extraordinarily low rates.
(2.94% for a 5 year fixed rate is the lowest rate special that our office saw)
But there is more to a mortgage than just the rate…
Amortization: this is the time period in which it will take you to pay off your debt. With many rate specials on the market today (specifically the 2.94% and 2.99% rate specials) the lenders reduce your maximum amortization from 30 years to 25 years. This increases your payment.
Prepayment Privileges: this is the ability to prepay a portion of the mortgage principle before its due date, without a penalty. With the rate specials mentioned above, the lenders typically withdraw your right to prepayment privileges. This is then called a no-frills mortgage.
Sale Only Clause: this is usually found in the fine print because lenders don’t want you to know that they have actually locked you into their institution for a set period of time. With a sale only clause you cannot refinance, change your terms, or move your mortgage UNLESS you sell your house. This is a very restrictive clause… do you know what life will hand you over the next five years? Can you say with 100% certainty that you won’t need to change the terms of your mortgage?
Term: this is the length of time that your fixed or variable rate is set for. Your term should match your financial goals. Do you plan to own your home for 5 years or longer? If you do, a 5 year term might be the perfect fit. Do you plan to renovate and flip your investment property? If this is the case a 6 month or 1 year term might better suit you.
Portable: This is the ability to be able to move your mortgage from your existing property to a new property. Again, with the rate specials most lenders retract this right. For those lenders that extend this privilege they require that the new property be 98% complete on all floors that are above grade.
Assumable: this is the ability to have your mortgage assumed by a qualified borrower. This is one way to get out of your mortgage mid-term without paying a penalty. Assuming a mortgage can provide a buyer with a below market interest rate (if rates are now higher), as well as saving on the legal costs of creating and registering a whole new mortgage. “Assumption” entails a simple amendment to the mortgage document registered on title.