Mortgage Options
Mortgage Options
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Mortgage Options
Options
let you tailor the mortgage to fit your personal needs and circumstances. Open or closed mortgages, pre-payment options, or the term on your mortgage are just a few of the available options for you to decide on priority and importance.
Open vs Closed
Open, describes the option to prepay without penalty allowing a borrower to make lump sum payments or pay off the entire mortgage without incurring extra fees. This option generally comes with higher interest rates and shorter terms. This is a good option if you plan on selling your home soon, or need a short period of time to weigh your options before looking into a closed mortgage.
This option is also helpful if you know you may need to break your mortgage earlier than what you originally committed to.
Closed is exactly how it sounds. They involved a fixed payment allowing a home owner to adjust to home ownership and their new budget that now includes regular mortgage payments. Closed terms are available for longer periods of 5-10 years allowing for greater certainty when planning for the future. It is also no surprise that generally the best rates/terms you see advertised are generally all closed mortgages.
If mortgage lenders are going to give you their best rates they generally also want some commitment from you for that same amount of time. Should you choose to pay off your mortgage before the end of the term you will most likely be charged a penalty. As such they are not a good option if you plan on moving in the near future.
Pre-payment
Pre-payment privileges (PPP) are all of the options you have once you have moved into you home and started your payments if you wish to pay off your mortgage faster. Generally lenders state pre-payment privileges in terms of a percentage. They range most often from 10-25%. All of these privileges are annual allowances given to you and are always based on your original starting payment and balance owing. Your annual calendar is based on your closing, or mortgage start, date. This is the day your mortgage calendar starts.
There are 2 ways that lenders allow you this expedited paydown.
1) Increases to your mortgage payments:
Example: Your mortgage payment is $1000 monthly and you have a 20% PPP - calendar date start is March 1st.
If you were to call your lender in April you are in your first calendar year.
20% of your $1000 monthly pmt is $200
You could increase your payment to $1200 moving forward.
On March 1st the following year you are now in year 2 of your mortgage.
You can add another 20% of our original $1000 payment (another $200 for a total of $1400 monthly)
*NOTE: if you were to decide at anytime that the increased payment no longer suits your monthly budget you can always go back to original $1000 monthly pmt you started at.
2) Lump Sums
Example: Your mortgage starts at $100,000 and you have a 20% PPP - Calendar date March 1st.
If you were to come into some money later in that same year, say in June, you could call your lender and give them up to 20% of that 100k, meaning an extra $20,000 annually.
The same basic rules apply to lump sums as with the monthly payments - you can do this annually and the amount you can do is always based on the original 100k you owed. Even if in year 1 & 2 you give them an extra $20,000 you can still give them 20% of the original $100,000 every year of your term.
** NOTE: different lenders have different ways to can do these lump sums.
A) allowing you to do the pre-payment once per year only on your calendar anniversary
B) allowing you to do it once anytime in your calendar year
- Fort both these options you can simply start yourself a savings account and make your extra lump sum onced a year
C) allowing you to do a lump sum ANYTIME you make a payment - this is by far the most convenient option as these lenders usually allow a lump sum to be anything over $100-$200. This allow you more flexibility to be able to pay your mortgage down to the maximum you had in option A & B but in smaller increments that can make lump sums easier to make as you have spare money come up each month.
* This is a key thing to focus on when choosing your mortgage as it is key to ensure that your options suit your finances and how you wan to manage your mortgage paydown.
Portability
Many lenders offer products which will allow you to carry your current mortgage conditions to a new home should you decide to move. This movement can be as simple as an upgrade or downgrade in home size or type, relocating to a different community in your city, to a different area of your province or across the country itself.
Portability allows you to stay with your present mortgage lender, move the mortgage from the home you presently live in to your new chosen home and generally avoid penalties. If you require new funds for your new home the lenders generally have no issue supplying these funds upon qualification of the new home. These new funds are provided at whatever the rates are at that point. Lenders will generally blend the new and present funds and give you one new combined mortgage payment going forward.
** one VERY IMPORTANT thing to note with porting: porting always needs re-qualification even if your mortgage amount is not changing or is increasing. Always ensure to you reach out to us to discuss your options prior to making any major decisions or taking any steps in selling or buying a home to ensure that you will qualify for the porting process.
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