How Much Penalty Will I Pay If I Break My Mortgage?
One way to watch your money slip away from your pocketbook and disappear is by breaking your mortgage unless the changes it will create are financially advantageous. To determine exactly what financial gain there will be you need to use a mortgage calculator (look for many free ones online) to help figure out the precise details. Interest rates are at all time lows currently and this can average substantial savings over the lifetime of your mortgage loan.
Do you have a closed or open mortgage?
When you first purchased your home and took out you mortgage there was a decision made as to whether it was an open or closed mortgage. An open mortgage is a more flexible agreement in that homebuyers have the option to repay their loan any time and do so without penalty involved. This allows the flexibility to buy then sell a home within a few years as you move up into better or more expensive housing. It will also work out well if you choose to downsize before the length of your contract runs out. Closed mortgages can be advantageous because the rate of interest is usually lower for the complete term of the mortgage, for perhaps six months up to 25 years. And the home buyer knows what their rate of interest will be for the period of time the mortgage runs.
Fixed rate or adjustable rate mortgages assistance when rates are low
Whether your mortgage is a variable rate or set (fixed) rate you may well assistance by breaking your mortgage and beginning over with the low rate of interest that is currently obtainable. already though a difference in percentage points on a long term mortgage can average many thousands of dollars, many do not become involved with studying the differences or already consider asking an expert advisor. It is suspected that many simply fear truly knowing how much they will ultimately pay for their $200,000 mortgage when figured out over fifteen or twenty five years.
Short term loan verses long term method thousands saved or squandered
If you already are tied in to a long term mortgage of some 5 to 25 years you can break that mortgage, begin a newer shorter term agreement, with that enticing low rate of interest and realize many thousands of dollars over the term of that mortgage. And if you do plan on selling later on the savings will most likely nevertheless be realized when you pay off your loan at a lower cost. Just be aware that there will most likely be penalty issues because when you break your mortgage you are stating you want out of a binding contract for which you made a commitment to pay X amount of dollars. Commonly the penalty for breaking a fixed rate mortgage amounts to an interest rate differential or some three months interest charges while a variable rate mortgage is generally based on the simple amount of three months worth of interest cost. Either way, the mortgage lender wants to be recompensed for losing your current mortgage, whether they are the new loan holder or not.
Mortgage calculators help simplify the math
Before breaking your mortgage you first need to determine how much you will save and if that penalty is worth paying to realize savings. Shopping around to determine if you can get a better deal in other places is what the mortgage game is all about. Each competing company has offers to entice customers already though the rate of interest remains fairly steady for now, it can be raised or lowered a bit depending on the bank or lender.
Talk to a licensed Mortgage Agent, they can help make sense of the numbers and put them into perspective by comparing costs and savings over time. It may save you thousands to break and get a new mortgage, conversely the calculations may show that you just break already and staying where you are just makes sense. Remember we are talking about the biggest loan the average Canadian is likely to borrow. The path to saving money is all revealed in the numbers and those numbers are worth looking into.