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Things You Need to Know Before you choose a Mortgage
These days there are all kinds of different features that can be built in
to a mortgage. It is important to discuss with a mortgage
broker the type of mortgage and what is built in to it. Your rate
will usually determine what types of features are built in to your
mortgage. When considering the arrangement of the mortgage you need to ask
yourself a number of questions to help in determining the mortgage you
need. For example, you should be asking the following;
- How long do I plan to live here?
- Is my job likely to change within the next 5 years?
-Will I have the ability to increase my mortgage payments within the
term?
First off, Open or Closed. Traditionally open mortgages were
offered more frequently. They have for the most part
disappeared. Some banks and lenders still offer them but you are
going to get penalized on the rate. An open mortgage simply means
you can pay it off anytime without paying a penalty. It is
important to be aware of the type of closed mortgage you are getting in
to on the other hand. Some mortgages which are closed cannot be
paid out unless you sell your house. Others can be paid out with a
penalty which depending on the rate and the type of rate you have can be
quite expensive.
You also need to know if your mortgage is portable and assumable.
Basically as most mortgages are closed you to know if you decided to sell
within the mortgage term what your options are. If your mortgage is
portable, all it means is that you can move the mortgage to a new house
that you purchase thus allowing you to avoid a penalty on the entire
mortgage amount. It also allows you to keep your rate for the
remainder of the term. An assumable mortgage basically means that
when you sell your house, a qualified borrower can take over your
mortgage the way it is. I would seriously discuss this with a
lawyer before considering anybody to assume your mortgage as you may be
responsible if the new borrowers stop paying.
It is also very beneficial to know what kind of pre-payment privileges
are available with your mortgage. In some cases you may find
yourself with really no option for pre-payment, you may have given that
up to get a better rate. Most lenders allow you to increase your
payments and do lump sums up to a maximum of 20%(I have heard of 25% in
some cases, pretty rare though). What that means is if you are
allowed to increase your payments by 20% then you can set them up so they
automatically take up to 20% every month. The extra money goes to
the principal allowing you to pay off the mortgage much quicker.
Also, if you are allowed a 20% lump sum payment then basically you can
pay up to 20% of the original mortgage balance on the 1st year
anniversary of the mortgage. Some lenders are more flexible and
will allow you to make multiple lump sums after the 1st anniversary as
long as you meet their minimum amount and the total amount doesn’t exceed
20% of the original balance per year. Some lenders also allow you
to double your monthly payments on any given payment.
In conclusion, it is best to work with a mortgage broker to make sure you
are given exactly what you need in terms of mortgage options.
Unfortunately when you go to the bank you are only given the options they
have which can be limited in comparison. Please contact me if you
have any questions about this or any other mortgage related stuff.
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