How Hard Is Your Mortgage Working For You? 6 Mortgage Features You Need To Know

1. “Blend and Extend”. Allows you to refinance to access your equity and/or get a lower mortgage rate without having to pay fees for breaking your existing mortgage contract. Here’s how it works: you blend the interest rate of your existing mortgage with the rate available today from your lender if you were to get a new mortgage, giving you a new rate that falls somewhere in between the two. The “extend” part of the term comes from the next step: your new blended rate requires you to extend your mortgage term back to its full length. Here’s an illustrative scenario: you’re currently two years into a 5 yearfixed rate term with an interest rate of 5%. Your lender now offers 3% to new borrowers, so your blended interest rate falls in the middle at 4% and your mortgage loan term is extended back to 5 years.

2. Early Payout Penalty Calculation. Different lenders calculate their IRD (interest rate differential) penalties differently. The IRD is a compensation charge that may apply if you pay off your mortgage prior to the maturity date, or pay the mortgage principal down beyond the amount of your prepayment privileges. It’s important to understand how your early payout penalty would be calculated, if your mortgage is paid early. This is because some chartered banks are known for their large IRD penalties, resulting in borrower surprise. Most closed fixed-rate mortgages have a prepayment penalty that is the higher of 3-months interest or the IRD, while variable-rate mortgages do not have IRD penalties. If you don’t know whether you’ll keep your mortgage for its entire term, make sure you view the fine print in your mortgage documents as it pertains to payout penalty so you aren’t stung if your situation changes and you want to pay out early.

 

3. Mortgage Registration. Is the mortgage registered as a non-standard charge, either a running account, or a collateral charge? If so, then it becomes harder to switch this mortgage out to take advantage of lower rates. Consider this scenario: If the lending institution knows you will have to incur $1,000 or more in possible costs, as well as put in the time and effort to complete a refinance with another lender, then there is lessincentive to offer you best rates at renewal time when a small rate reduction might be enough to keep your business.

4. Pre-Payment Privileges. Is the lender offering 15/15, or 20/20?  That means allowing prepayments of 15 % or 20% annually on the outstanding balance of the mortgage.  It also means allowing you to increase your regular payments by up to 15 or 20%. Also, can these lump sum payments be made during the year or only at the mortgage anniversary? And how easy is it to make lump sum payments? Do you have to go into the branch, call a 1-800 number? Or can you simply go online and do it. These are important factors to think about, especially if you earn commission or receive bonuses that you plan to put toward your mortgage balance over time.

5. Porting Features. This feature, which allows you to keep your mortgage if you move properties, can vary from lender to lender. This is an important factor if you think you might move before the mortgage maturity date. If your job has you transferring regularly (think: military, navy, employee of a multi-national) this feature is key.

6. Online Access. Many lenders offer online access to your mortgage account. Generally,online access allows you to see your balance, make additional lump sum payments, or make a payment increase. This can be a time-saving feature for tech-savvy consumersthat want to see all of their mortgage information, and complete transactions, at the click of their mouse.

Take a look at that mortgage agreement, and give us a call today. Now is the time to lock in rates,  and make sure your mortgage is working as hard as possible for you.

 

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