Is YOUR mortgage flexible???
Just in case you aren't sick of me yet. . :) Here's my mortgage column for this week too. Not being published til Thurs.
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Is YOUR Mortgage Flexible?
We’ve been seeing some pretty amazing rates out there in the past few months. Who would’ve thought there would be a time when mortgage rates dropped below prime rate for a 5 year term?! While that is fantastic news for many, for others it could be the case of, “If it sounds too good to be true, it probably is. . . “ Why? Lack of flexibility.
Unless you have a cash reserve, investments, or some kind of monetary back-up, you could find yourself in a serious situation, really fast. The ultra low rate mortgage offerings out there are usually extremely limiting. In the mortgage industry,we call these “no frills” mortgages because you get what you pay for. . . a low rate and not much else.
To clarify that, let’s look at what it doesn’t give you. It will not allow you to break your 5 year term unless you die or sell your home. You are with that bank come heck or high water. Why is thatimportant anyway, you may ask? Well, did you know that more than half of Canadians break their mortgage at the 3 yr. mark? The reasons are usually everyday events that affect us all, at one point or another. Some of thosecould be: unexpected illness, injury or accident, loss of employment, unexpected relocation, or an unexpected large expense (such as a roof or renovation).
Unless you have relatively large amounts of money stashed away, you may be stuck in the event of any of the above occurring. The average mortgage holder has the luxury of tapping into their home equity if needed, whether that be through their existing bank or refinancing with another Lender that has the best rate. Whileit’s true most have to pay a penalty to break the old mortgage; if the terms of the new mortgage are good enough,it will pay for itself with the benefits it offers. Most No Frills mortgages however, have no option to break the mortgage . . . period. (besides death or sale of house)
Another area one might be affected with the “No Frills” mortgage is if you decide to move. While you may be able to port a No Frills mortgage, you are generally at the mercy of the Lender in regards to what rate you will get if you are increasing the principal amount at all. You’ll notice I have repeated a few points. That’s because they are very common and really need to be given thoughtful consideration before you make a decision.
The best way I can put this in perspective for you is give you a literal cost comparison. Let’s use a 5 yr.term mortgage of $100,000.00, amortized over 25 yrs. to illustrate.
Interest Rate Monthly Paym’t Total Interest over 5 Yrs. Final Balance at End of 5 Yrs.
2.99 $ 472.73 $13,822.13 $85,458.33
3.19 $ 483.05 $14,215.81 $85,794.19
Difference?! $ 10.32 $ 393.68 $ 325.86
As you can see, there’s not a wholelot of savings for what you may be giving up in flexibility.
This is the guidance and informationyou will get from your mortgage broker and it’s free. I hope I have helpedclarify a few points for you today.
