It's no secret that there are still some very low mortgage rates available right now, and that can be tempting to anyone who wants to get a great deal especially when real estate prices in Calgary are hitting the roof once again. After all, just a small decrease in an interest rate can mean saving thousands of dollars throughout the life of the loan. So, what do you do if you want to take advantage of the low rates right now? Should you break your mortgage, even though you're locked into it? Before you make any hasty decisions, remember that you need to consider how much breaking your mortgage will cost you, and if it will really benefit you in the long run to get those low interest rates.
Surprise Penalties When Paying Back a Mortgage
The big questions is: If you commit to breaking your mortgage, how much is that going to really cost you? Of course you'll see savings in the interest rate, but are there any hidden costs that you should consider? What you might not know is that there can be a penalty for breaking your mortgage term, and that could be a considerable amount of money. If you don't look at this first, then you could end up paying a lot of money that you really never anticipated. For example, a homeowner in Calgary decided to sell his home even though he wasn't all the way through his five-year mortgage term. Unfortunately what he didn't realize is that the penalty for breaking that was a whopping $10,000! Although he did get a better rate on the new mortgage that he took out, that penalty outweighed the savings, making the entire move not worth it for his finances.
While there are some mortgages that allow you to transfer your loan to a new home, this isn't always the case. This means that you could end up paying that high penalty, and that makes the great rate you're getting for your new mortgage less than appealing. What's the lesson to learn from this? That you should ALWAYS find out information about possible penalties if you are thinking about selling your home before your term is officially over. If you end up signing before doing this, then you'll be stuck paying that large sum of money, as most government offices aren't going to do anything to help you out.
Looking at the Details
Although the penalty is important to consider, you should also look at the contract information on any new mortgage that you sign. Doing so will ensure that you know what you're getting into, and know the details that could end up costing you down the road. For example, a lot of mortgages have a stipulation that the mortgage can't be broken unless you sell your home, and that could mean being stuck in your home for a very long time. Also consider if there are prepayment terms on your mortgage that let you pay a large amount of money on your mortgage so that the penalty will be less if you decide to break before the term is up. By understanding your mortgage better, you can avoid those nasty penalties and other surprises that can take homeowners by surprise.
I am a licensed member of the Real Estate Council of Alberta since 2005 - proudly representing CIR REALTY, Calgary’s largest real estate brokerage. I enjoy keeping my readers up to date with real estate related information that they can easily understand and use for their own benefit. I welcome feedbacks and comments equally from first-time visitors to my blog, past clients and also from my fellow REALTOR® colleagues. Thanks for stopping by!