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.
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