August 03, 2014
Key factors to getting out of a mortgage in order of importance continued from part 1:
Every lender allows some additional payment to your mortgage. These additional payments are called prepayment.
Not only does a prepayment allows you to pay the mortgage off faster, it comes in handy when you are looking to break out of your mortgage and is wiling to take a penalty charge. By making a temporary high prepayment, you can reduce the penalty charge.
Banks generally provide 20% of your original mortgage can be prepaid each year. ING Direct offers 25%.
Objective: obtain the highest prepayment possible. You should be able to get one for 20%
It is nice to be able to go on the Internet and monitor your mortgage. It is also nice to be able to quickly make changes such as changing your payment cycle or making a prepayment instantly over the Internet.
Most small lenders require a phone call and can take several days before making such changes. ING Direct requires that the prepayment be made only during the day of the of the mortgage payment. ScotiaBank allows you to make prepayments over the Internet and the transaction occurs instantaneously.
Discovering your lender's accessibility and change response rate is hard because this stuff is never discussed, but asking if your mortgage can be accessed through the Internet is a start! You can also ask how a prepayment can be made and how quickly it can occur.
Objective: Look for lenders that allow to access your mortage over the Inernet and make changes quickly online.
Home Equity Line is a secured credit line that allows you to borrow money at low interest rates, usually around Prime+0.5%. It is low because it is secured by your home. That is, if you ever end up not being able to pay the debt, your home becomes theirs. A home equity line can help you pay for things when you need short term cash.
The amount you can borrow is determined by the appraised value of your home times 80%.
Banks offer home equity line. Most small lenders do not. Some banks even allow you to consolidate your home equity debt into your morgage debt. Thus, reducing the home equity interest to the mortgage interest.
Many banks offer this home equity line even if you do not have a mortgage with them. However, they will charge a $150 or more for the set up fee, if you do not have the mortgage with them.
Objective: Look for lenders that can give you a home equity line and consolidate it into your mortgage with any fee associated.
You may never find the perfect lender will offer everything you want. Often, lenders that offer to pay for your mortgage set up cost, will not give you the lowest interest rate. You will have to do the math in order to calculate the best fit scenario. (Don't even bother asking a mortgage lender to do that for you. These lenders have their own agenda which is different and possibly opposite from yours. ) For example, if you have a large mortgage and do intend to make large prepayment, it would be better to find a the lower interest instead of finding a lender to cover the mortgage set up cost.
Scotiabank has an innovative step program that allows you to have three mortgages under one mortgage. Thus saving you mortgage set up fees when getting a new mortgage to buy a second home.
Good luck!!! If you have any questions or concerns, simply post them. I will respond.