Steve Nipius, TMG’s Deal Centre Manager has complied his Top Six Strategies to assist home buyers assess their mortgage offers to make sure they’re getting what they need. It’s important for consumers to understand what features are important to them before deciding on a lender based on interest rate alone.
Take a look at some of the features you might consider:
- Blend and Extend. The introduction of the Benchmark qualification rate a few years ago has encouraged more lenders to offer this feature, whether on a refinance or a port and increase. For example, if your current lender doesn’t allow a change in the maturity date, then you’re locked into the remaining time left on the term. While that’s not the end of the world, in a rising rate environment this can be extremely inconvenient. If you’re moving up, and buying at your maximum loan-to-value, you probably don’t want just a 1 to 2 year term and with the new benchmark rule, you may not even qualify. If rates have dropped since the original mortgage you could run into the dreaded “Interest Rate Differential” (IRD) which might be too large and you can’t move. Lenders that allow a blend and extend simply blend your current rate with the now current rate.
- Early Payout Penalty Calculation. Some chartered Banks are known for their extremely large IRD penalties. The wording in some other no-frills products refers to the payout penalty as the greater of 3% of the balance or IRD -- this would mean a $15,000 minimum penalty on a $500,000 mortgage. Some lenders also carry large re-investment fees. If you don’t know you’ll keep the mortgage for the entire term then make sure to read the fine print in your mortgage documents, especially as it pertains to the payout penalty.
- Mortgage Registration. Is the mortgage registered as a non-standard charge, either a running account, or a collateral charge? If so, then it becomes almost 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 little incentive to offer you best rates at renewal time when a small rate reduction might be enough to keep your business.
- 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. Also, can these lump sum payments be made anytime per 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 consider.
- Porting Features. This feature can vary from lender to lender. Read the fine print, especially if you know you might before the mortgage maturity date.
- Online Access. All of the chartered Banks offer online access as do a number of mortgage banks, including First National and Street Capital. 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 consumers.