{This is a guest post.}

Before you sign a home mortgage it is imperative that you read the fine print. The birdseed of your mortgage contains clauses and stipulations that describe potential penalties in an often cryptic manner. While your life might seem fine and dandy at the time that you secure your mortgage, things can change. If your personal health declines or if you find yourself out of a job, you might not be able to honor your mortgage.

The unfortunate truth about mortgages is that plenty are broken before they mature. The result is often overly-harsh penalties. Anyone who signs mortgage documents should be well aware of the penalties that they will face if they don’t honor the agreement’s terms. Even if you don’t break the mortgage but seek a refinancing, you might have to eat a nasty pre-payment penalty that most consider to be egregiously expensive. Here are some tips I can provide you with from my experience as a mortgage broker in Barrie.

Invest The Time And Effort To Understand Your Mortgage Terms

Although it seems obvious, plenty of borrowers fail to delve deep into the fine print of their mortgages. Oftentimes, mortgage agreements contain language that provides an affordable means of refinancing or exiting to obtain a lower rate with another lender. Sometimes it makes sense to pay a penalty with your lender in order to jump ship and secure a much more affordable rate with a competitor. So sit down and spend some time reading over the details of your mortgage.

Research The Lenders

You can be proactive and take some precautions aside from reading your mortgage’s fine print in order to avoid penalties. Consider borrowing from a mono-line lender. A mono-line lender is a lending institution that deals solely in the mortgage business.  Oftentimes, mono-line lenders will charge half the penalty of other lenders. This is primarily due to the fact that mono-line lenders typically utilize lower interest rates across the board. They are in a position to not have to enforce outrageous penalties for those who break their mortgages. 

So do your research before you do business with a lender. Consider each lender’s penalties for breaking the mortgage and don’t rule out the possibility that you’ll end up in such a predicament. You don’t know what the future holds. While it’s nice to imagine yourself continuing with stable employment and a happy marriage for the foreseeable future, this vision doesn’t always come to fruition.

Term Length

Borrowers who anticipate that their lives will be significantly different within a couple of years after signing a mortgage should seriously consider signing a short term agreement of 2 to 3 years. Borrowers who are only on the hook for a few years will have a reduced chance of suffering harsh mortgage penalties. Yet these borrowers will also sacrifice the opportunity to secure an optimal interest rate. Interest rates for 5 year terms on up are typically much more affordable than short term loans.

Consider Alternative Mortgage Types

Mortgage seekers should consider a variable mortgage. While it is a bit more challenging to meet the lofty qualification standards for this type of mortgage, it has some distinct advantages. The penalties associated with breaking a variable mortgage aren’t as severe as those associated with traditional mortgages.  It is worth noting that there is some risk involved in a variable mortgage. Variable mortgage interest rates aren’t stable. They move up and down over time. Yet variable mortgage borrowers do have the ability to convert the mortgage to a fixed interest rate if desired.

Watch Out For Collateral Charge Mortgages

If you have any concern about mortgage penalties, you should stay far away from a collateral mortgage. It only adds extra expenses in the event that you refinance, transfer or change the mortgage when it reaches maturity. In this scenario, it will cost upwards of a couple thousand dollars to hire an attorney to discharge your mortgage. Your collateral charge mortgage holder will be fully aware that you’ll be on the hook for this expense and it won’t be in the firm’s interest to provide you with a fair rate when it comes time to renew.

Contact Your Lender Or Consult With An Attorney

Don’t be afraid to reach out to your lender to gain a full understanding of all of your options. You might be able to refinance with them and they’ll waive the customary penalties if you’ve been a loyal customer for years. If they’ve used confusing language when referring to the penalties in your mortgage agreement, ask them for clarification. Oftentimes, lenders will use ambiguous phrases to intentionally disguise the true costs of penalties. So don’t break your mortgage under the assumption that you fully understand your mortgage agreement’s complex text. If you have any doubt about the penalty language, contact your lender for clarification. Or, consult with your attorney if your lender is still using cryptic terms to describe potential penalties. If you have a full understanding of the sorts of penalties you’ll have to pay, you’ll be able to develop a sound strategy before making a decision.

Thankfully, the Department of Finance is now forcing lenders to use plain and clear English to describe mortgage penalty charges. While older agreements don’t contain such layman’s terms, new agreements explain exactly how banks determine prepayment charge calculations and they even offer calculators on their websites so that borrowers can easily determine penalty estimates on their own.

This article was submitted by Darren Robinson. Darren is a top rated Barrie Mortgage Broker, whose ultimate goal is to ensure that he obtains the best mortgage strategy available that fits your life, while maintaining fast, professional and courteous personal service.