Decided to sell up? Worried what will happen to your mortgage? Here are a few questions to consider. Firstly, understand that all mortgages are not created equal. So, make sure that you read the fine print clearly. It will definitely have clauses for pre-payments and the penalties associated with it. While looking for mortgages, you generally look for the best interest rates, however, it is important to read all the clauses, terms conditions clearly. This will help you when you decide to pay before the term ends. The pre-payment penalties for fixed rate mortgages are generally the highest.
Here are a few questions you need to consider asking your lenders about their penalties:
Q. I’m selling my current home and need to port my mortgage to a new property. How long can I take to close without too much damage or avoid a penalty?
A. Some lenders expect you to close your current mortgage on the same day. There are some lenders who give you a period of 30 – 60 days to close. Make sure you understand the policies of your lender.
Q. Can I increase my mortgage amount without a penalty?
A. There are many lenders who allow you to increase your mortgage amount without any penalty. Some have the facility to blend extend. Others allow you to keep the current loan as it is and give you an additional loan for the remaining amount.
Q. Do I have to pay reinvestment fees?
A. If the mortgage is paid off within the first three years, some of the lenders do charge a reinvestment fee. You will also have to pay back the cash incentive you got during the first mortgage.
Q. What term is used to calculate interest rate differential penalty?
A. Some lenders use a shorter term that is nearest to your maturity date. This however significantly increases your penalty.
Q. Is the fixed rate mortgage penalty based on posted rate, bond yield or discounted rate?
A. Some lenders increase penalties on posted rates. This can dramatically increase you penalty. Some other lenders use the bond yield this generally depends on the bond market. Yet some other lenders use the posted rates and calculate a 3 month interest as penalty. Make sure you ask your lender about his policies and clauses.
Q. If I pay the penalty, can I get out of a fixed mortgage?
A. Sometimes you cannot get out of a mortgage before maturity unless you actually sell your home. That is why you must ask your lender for all the clauses before you finalize.
Q. If a mortgage is broken in order to stay with the lender, is a percentage of the penalty be forgiven?
A. The answer to this is that most lenders will allow you to do this in order to keep business. But be careful, make sure that you clearly understand all the clauses and all the terms and conditions before you jump to conclusions.
It is important that you ask questions and then take informed decisions while moving up and not being penalized for doing so!
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