What Options Does Your Mortgage Have?
August 24, 2017 | Posted by: Shayne Beeler
This would seem like a fairly basic question. What I find however, is that most are naturally familiar with their payment frequency and what term they have, while the additional options are less top of mind for many mortgage borrowers.
If you already have a mortgage, up to what amount can you prepay each year without being penalized? How much can you increase your mortgage payments by each year? And even less talked about, when and how often could you make the changes or pre-payments? I completely understand why many of us view a mortgage as a commodity. Like gasoline, for example, most of us would make a choice based on price and convenience without a discussion around the chemical makeup of the substance. Most of us also agree that filling up at different “brands” wouldn’t yield noticeably different results (again, “most of us agree” – I have Clients that work for suppliers and others that own high performance cars… there are exceptions that I should acknowledge). What keeps us viewing a mortgage as a commodity is making comparisons only by interest rate. Here’s an example:
A $300,000 mortgage, 2.99% interest rate, two different lenders (“a” and “b”). If we stop there, the mortgages are the same. Let’s look at the prepayment options:
a) Prepay 10% of the original principal amount of your mortgage once in every 12-month period
b) Prepay 15% of the original principal amount of your mortgage at any time, sum total not to exceed the yearly maximum
These are two very well known Canadian banks that clearly have different options within their mortgage terms. Looking at a mortgage as a commodity, it would be “$300,000, 2.99% rate, 25-year amortization… same thing, different color logo”. Compare these products beyond the rate, and we realize they truly aren’t the same. There are differences among all mortgage products, in reality. They would be subtle to some, but drastically different to others. I also encourage you to consider that a mortgage feature that may not seem applicable to someone today can become a key (money saving) feature at a later date.
We’d be happy to discuss these differences with you in more detail. We would determine which of these differences could impact you in the short term and also plan for the flexibility you may need at a later date. Please contact us anytime for more information.
