too high? Looking to consolidate some of your debt? There are a few keys to ensuring that you get the best rate when renegotiating a mortgage.
- Be Prepared:
When you or someone you know is renegotiating a mortgage, you must be prepared. In order to keep your interest rate as low as possible, you should evaluate your credit risk before shopping. We recommend checking your own credit to ensure that there are no derogatory items on your report that could unexpectedly hurt your score, or old employment information that could impact the way your lender views your application. In addition to your credit score it is important to review your property value, income and existing mortgage. Knowing this information before negotiating your mortgage gives you the upper hand.
MorCan Direct offers a service that does this for free. One of our specialists would be more than happy to walk you through our comprehensive 4 step process. This process involves appraising the value of your home, and thoroughly reviewing your credit and income. Whether you have 1 month or 4 years left on your mortgage, we think that you will impressed with the information that MorCan can provide you!
- Understand Your Rate:
It’s important to understand the range of products that are offered in the mortgage market. There are many available discounted mortgage offers, but sometimes they come with very strict limitations. A good broker will be able to walk you through all the options available to you. The Internet is a good resource when looking for a mortgage. However, just like when searching for any other type of advice, there can be some misinformation.
- Be Wary of Bankers Offering Discounts:
Banks are competing for your business, which is a really good thing! However, you need to be more careful than ever before when getting a mortgage from your bank. Penalties that are levied on unsuspecting consumers for breaking mortgages are at all-time highs. It is common to see mortgage penalties in excess of 6% of a mortgage balance. Banks are manufacturing these incredible penalties by creatively charging “Interest Rate Differential Penalties”.
When a consumer sees a “Mortgage Rate Discount” on their mortgage offer sheet at a bank, they get excited about how much lower their rate is than the bank’s posted rate. They believe that the bank is helping them. This is not the case. The bank is simply stating that in the future, when that same client wants to break their mortgage, they will be using that discount to inflate the penalty that they charge.
Steps Banks Take to Create High Mortgage Penalties:
When you get a 5 year fixed rate mortgage from a bank, they will tell you what their posted 5 year fixed rate is. For argument’s sake let’s say it’s 5%.
Then they will tell you that, because you are such a valuable client to them, they will offer you a rate of 3%. Wow! That’s a 2% discount off of their “Posted Rate”.
This may cause you to get so excited that you don’t pay close attention to the rest of the document you are signing. What you won’t realize is that, at the back of that contract in fine print, there is an explanation as to how they will be calculating your penalty. Should you ever decide to break your mortgage, they intend to recoup all the money they will lose in interest by instead charging you a penalty.
So, you decide you want to break your mortgage. Let’s say you only have 2 years left in your term. The bank begins to calculate how much you owe them.
Remember your rate was posted at 5% and discounted to 3%. Because you have 2 years left, the bank will then discount their posted 2 year rate by the same amount that they discounted your 5 year fixed rate. Let’s say the 2 year posted rate is 3%, discounted by 2%, making it a rate of 1%. In this case, they will subtract 1% from the mortgage rate you originally offered. Then that difference (2%) will be applied to your entire mortgage amount over the remaining term, and voila! A really high penalty.
You end up paying the penalty.
Does this mean you shouldn’t ever get a mortgage from a bank? No. However, there are a lot of things to be aware of when you are looking to renegotiate a mortgage. Getting help from a knowledgeable mortgage professional is really important. If you or someone you know has any questions about renegotiating or breaking a mortgage please do not hesitate to contact us. As many of our clients have already discovered we have very creative ways to discount those evil mortgage penalties.