Not all Lenders are Created Equal: Understanding Penalty Payments

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.

www.themortgageguyniagara.com

Understanding Your Credit Report

A credit report is a history of how consistently you pay your financial obligations. It is created when you first borrow money or apply for credit and is built over time.  The companies that lend or collect money or issue credit cards (banks, finance companies, credit unions, retailers, etc.) send credit reporting agencies specific and factual information about their financial relationship with you.

Details, such as when you opened up your account, timeliness of your payments and if you have gone over your credit limit are shown in full.  Although this information is confidential, you have the right to see your credit report and no one else can have access to the information in the report unless you allow it.  Typically, when you apply for a loan, a credit card or even a mortgage you will need to allow this organization to check your credit history.

The credit report summarizes information about the different types of accounts you have.  It will include the following account types:

• Revolving accounts, like credit cards and lines of credit 
• Installment accounts, like loans
• Other accounts, like cell phone 
• Collection accounts

When you receive your credit score it’s important to make sure that the information in the report is correct. Read the report carefully to find out which factors are most likely having a negative influence on the score, and then work to improve them.

• Make sure you have a credit history: you may not have a score because you do not have a record of owing money and paying it back. One way to build a credit history is by using a credit card. 
• Always pay your bills on time
• Don’t go over 50% of the credit limit on your credit card
• Apply for credit in moderation

For more information or to order your credit report visit www.equifax.ca or www.transunion.ca

www.themortgageguyniagara.com