Interest Rates Shouldn’t Be All We Focus On

Interest rates have now been climbing for a year and have received a lot of attention in the media, but rates shouldn’t be all we focus on when choosing a lender or mortgage product? In today’s world, people change jobs and often homes more often than previous generations did, so having flexible mortgage terms can often save you more than a few points on a mortgage rate. The challenge is most people focus on the rate and pay little attention to the small print in the mortgage terms as they are not sure about what to look for and what questions to ask. Here are 4 questions you should know the answer to before committing to a mortgage:

•  Is the mortgage portable? If you decide to sell, can you take your mortgage with you to another home and increase or decrease it to suit your new situation and avoid paying a penalty. It’s shocking how many mortgage products do not allow this or limit it.
• Is the mortgage assumable? If you decide to sell and not buy again, can someone assume your mortgage when buying your home, avoiding you having to pay a penalty? Most mortgage products that include a line of credit are not assumable.
• How will my mortgage penalty be calculated if I pay out my mortgage early? Lenders charge a penalty if you payout your mortgage early, and most people are surprised to hear that over 60% of mortgages don’t make it to renewal and people end up paying some kind of penalty. Penalties differ greatly between lenders and the different calculations can cost you thousands. So knowing these options before you buy is very important as we may think we know our future, but life often throws us unexpected curve balls.
• Are you allowed to make lump-sum payments or increases to your payments throughout the year? The more flexible the mortgage, the more likely you are to take advantage of increasing your payment or making a lump sum payment and reducing your mortgage which reduces your overall interest cost. We all have good intentions, but unless this is easy to do and can be done throughout the year the money often gets spent on something else you just have to have!