Many borrowers choose a five year term for their mortgage product as it suits their home-ownership plans as well as locks in a consistent payment which makes monthly budgeting easier.
Did you know that statistically, the average borrower will refinance, move, renew, pay-down or pay-off their mortgage in 3.5 years?
This means, the average borrower will be in a situation to deal with paying a penalty to discharge their current five year mortgage product. Not all lenders are created equal when calculating interest rate differential. IT PAYS TO KNOW THE PREPAYMENT POLICIES of all lenders when shopping for your mortgage.
Let’s look deeper into the numbers!
IF you took a 5 year fixed mortgage in August of 2010 for $250,000, you most likely received an interest rate of approximately 3.94%. The payment on a 25 year amortization would be $1,306.93 per month. Today, that current balance would be approximately $226,729.12.
Here’s what Chartered Banks prepayment penalties would be based on the above scenario:
Chartered Bank #1 - The penalty on this mortgage would be approximately $6,801.87.
Chartered Bank #2 - The penalty on this mortgage would be approximately $6,895.27.
Chartered Bank #3 - The penalty on this mortgage would be approximately $6,083.90.
Chartered Bank #4 - The penalty on this mortgage would be approximately $6,348.00.
Don’t despair! Here’s the same scenario with an extremely reputable mono-line lender (non-brick and mortar mortgage only business) – the penalty would be approximately $2,871.90!
While many borrowers focus on rates solely as the basis for their mortgage products, penalties can be a significant feature that should be in place at the time of product selection. This feature might not ever be realized, but wouldn't it be nice to know that if your situation changed, you would save you thousands of dollars in the process?
Have your Mortgage Professional get you the best rate AND a product with features beneficial to your family's needs.
Stephen Dainard, BCom AMP
Mortgage Agent M13000809
C: 416-970-0019 H: 905-358-3501 E: firstname.lastname@example.org
The Mortgage Centre - Get A Better Mortgage Inc.
Franchise Lic. 10874
P.S. Contact me for a free copy of Understanding Your Credit Score!