Mortgage Bells and Whistles

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The word ‘mortgage’ is derived from the old latin word, ‘mortuss’ or ‘dead.” And in old French, the word mort gage translates to “death pledge”. Kinda morbid, I know. But the reality is many of us will hold mortgages for the majority of our lives. The maximum amortization in Canada is 30 years which means it could take up to 30 years to pay off your entire loan. That’s one looooong commitment. So when it’s time to secure your home financing, a good rate is important, but equally important are the features attached to your mortgage loan. These features help pay down your mortgage faster so you won’t have to carry a huge loan until retirement, or worse, until death. Every mortgage comes with with features and privileges that allow for flexibility in your terms and conditions, and in some cases, they don’t. Make sure your mortgage has all the bells and whistles before you sign, and if they don’t, be aware of what you could be missing out on. Here are the things you should look for for a mortgage with all the bells and whistles:

Pre-Payment Privileges

Most mortgages cannot be prepaid in whole prior to the maturity date. But if you have prepayment privileges you can utilize these to pay down your mortgage faster, saving you time and money!

Lump Sum Payments – most lenders will allow for you to pay 15% or 20% of your original mortgage amount in one lump sum annual payment. In some cases, it could be limited to only 10% or less. Many lenders allow for 20% prepayment of your original mortgage amount without penalty. If you just happen to have this kind of money lying around, or you came into a large inheritance, you could utilize your mortgage privilege and pay off your mortgage in 5 years! This scenario, however unlikely for you, proves that a mortgage with all the bells and whistles can save you money and interest costs.

Increase your mortgage payments – in most cases, you are allowed to increase your monthly payments. Why would you do that, you ask? Instead of making a large lump sum payment towards the principle (as per above), you can spread this out over the year.

Match-a-payment – If you want to keep your payments the same and don’t have a lot of extra cash lying around, you could, at any time during the year, make one (or more) extra payments that equals the amount of your monthly mortgage payment.

Remember for all of the above, anytime you make an extra payment using your privileges, you are paying down the principle balance directly, thus saving you interest costs over time!

Portability

When it’s time to move, you may be wondering what happens to your mortgage. If you have the portability feature, you can, upon requalification, port your existing mortgage over to the new property. In many cases, additional money is required to purchase the new property. Portability can offer what is called blend and extend or blend to term. In the former, additional funds are procured with a blended rate (your existing rate with a new rate at the new term). In the latter, you’d add additional money and simply blend your existing rate with the current rate of the same term.

Note: If you are in a variable rate mortgage, you will need to convert into a fixed rate before porting to your new property. Variable rates cannot be blended.

Converability

This applies to those who have variable rate mortgages. Covertability allows for the borrower to convert their variable to a fixed rate mortgage (at the nearest term) at any time during the term.

Assumability

This provision allows for the purchaser of your property to assume the mortgage as well, provided the purchaser of the property completes a new mortgage application and qualifies for the loan. Once complete, the new owner assumes all the responsibilities and obligations of the original mortgage.

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