The Bank of Canada’s hefty interest rate drop this week may have some Canadian homeowners tied into expensive mortgages fantasizing about a lower rate.
However, the potential of relocating to a new property with a lower interest rate, or refinancing to take advantage of lower monthly payments, is weighed against the severe penalties associated with mortgage default.
While breaking a mortgage can often result in thousands of dollars in penalties depending on the type and number of years remaining on the term, experts who spoke with Global News believe there are various ways to reduce or even eliminate those fees entirely.
What does breaking a mortgage mean?
Breaking a mortgage entails terminating the contract with a lender before the maturity date, or cutting a five-year mortgage term short after two years. The most typical reason for breaking a mortgage is selling a house.
How to avoid the mortgage breaking penalty?
For people purchasing a new house and selling their old one, it is usual for a lender to allow the owner to transfer their existing mortgage from one home to the next. This means that the remaining term length, amortization, and total amount of the mortgage will stay the same, but the owner must re-qualify for the loan depending on the characteristics of the new home and any changes in the household’s financial situation.
This alternative is suitable for those who do not need to take out a larger loan to finance the relocation. However, for those purchasing a larger property, the lender may provide a “blended” rate that combines the old mortgage terms with extra financing at today’s rate.
A similar “blend-and-extend” option is available for customers who want to refinance and add to their current term using a combination of today’s rates. A lender may provide a new five-year term that combines the existing rate for the remainder of the original term with a new rate for the additional months.
While porting is typical, a lender may offer to discharge the previous mortgage and start over with a “clean slate” with a new loan at today’s rates, with the penalty waived if the borrower continues to do business with the same bank.
In the event of a marriage breakdown, if no new money is borrowed, a lender may impose just an administrative fee for a spousal payout or a change in title.
Navigate The Ins & Outs Of Mortgages With Sandhu & Sran
Being a licensed and experienced mortgage broker in Abbotsford, Surrey, and Edmonton, we know what it takes to get you approved for a mortgage, or get you refinanced. We know penalties can be hard on you, especially if you are not that financially sound. To make sure you don’t have to pay a fine or face a penalty when breaking a mortgage, we are here to guide you through.
For more details on mortgage approval, refinancing, or transfer, contact our mortgage brokers today.