Thursday, January 19, 2012

It pays to check the fine print on low-rate offerings

Here's an article I read that makes a lot of sense.

It was a top news story last week. One of the major banks offered the lowest five-year fixed interest rate in Canadian history at 2.99 per cent. As a licensed mortgage agent, I had to quickly attain as much information as I could on the actual contract before I could recommend it to my clients. You know the old saying “if it is too good to be true …”

My research revealed that many of these low-rate mortgages have such restrictive contracts that they could get you into trouble down the road. Before you sign up for that great rate, make sure you are not signing up for something that could handcuff you financially down the road. You need a mortgage that will be flexible should you experience life changes. I have seen many clients brought to the financial brink because of the penalties and restrictions written into their mortgage contract.

Work with an expert and check under the hood. Not all mortgage contracts are created equal.

One of the scariest mortgages created in the last two years by the major banks is what mortgage broker’s are nicknaming the “mousetrap mortgage.” Mousetrap mortgages are so named because once you are in, you are trapped. The cheese is the initial great rate, but the trap comes in the form of extremely restrictive charges in the contract. I call them Hotel California mortgages because “you can check out anytime you like, but you can never leave…”. The technical term for a “mousetrap mortgage” is a collateral mortgage.

Unlike the traditional mortgage, which uses the property as security and will lend out up to 95 per cent of the home’s value, the collateral mortgage is a loan that is attached to a promissory note and is backed by the collateral security of a mortgage on a property. Because the security on a collateral mortgage is a promissory note with a lien on the property, the lender is free to register as much as 125 per cent of the value of the property, even though they are only advancing maximum 80 per cent to the borrower.

It is similar to a revolving line of credit allowing borrowers to increase their loan without the inconvenience or cost of refinancing. How nice. You have an amazing rate for the next five years and you can conveniently refinance anytime.

The major caveat with collateral mortgage is that the lender is free to change the interest rate on the contract under certain circumstances. Something as small as a missed or late payment can trigger an interest-rate increase. Some contracts are so restrictive that changes to your debt held with other institutions can also trigger an increase in rates of your mortgage contract.

One of these low-rate mortgages states that you must remain with the lender for the five years of the contract. As long as you stay with them you can refinance, and they even state that if you move, you can take their mortgage with you to the new property. But what are the conditions? Will a refinance with them trigger a change of rate? Will a port of your mortgage to a new property trigger a rate increase? What happens to your mortgage if you need to get a car loan with another lender? What happens at the end of the contract? Are there penalties if you don’t renew with them? These questions need to be asked.

It is imperative that you ask the right questions, get independent legal advice and have a licensed mortgage agent thoroughly go through the contract with you in detail. Your mortgage agent should be able to answer your questions by referring directly to the contract. While the big banks will offer to cover legal fees if you use their clearing house, I would suggest contacting your lawyer and paying to have them take a second look.

For most people, sticking it out for five years is not a big deal; especially at 2.99 per cent. But you never know what life might throw at you. You may experience a divorce, or get a job transfer or need to refinance so you need to be very clear about what will happen to your mortgage should you need to make changes. Remember costly surprises will wipe out a lot more than a few points of interest savings.

------

We never want to imagine a change in our lives negatively that would make us need to redo the mortgage in the less than five years, however, in my 7 years in doing mortgages, it's very rare that a mortgage goes to term due to something in life coming up. Just today I had to turn away 2 people asking for a second mortgage (to buy a thriving business and to pay a lawyer for a divorce) and both were denied due to a collateral charge registered on their mortgage eating up any available equity. Life changes!

21 comments:

Anonymous said...

You cаn certsinly see your enthusiasm within the work you write.
The sector hopes for more ρassionate wгeiters like you
who aren't afraid to say how they believe. At all times go after your heart.


Have a look at my web page :: riot wii points generator online

Anonymous said...

It's the best time to make some plans for the
long run and it is time to be happy. I have read this publish and if I may
just I want to suggest you some interesting issues or advice.
Maybe you could write subsequent articles
regarding this article. I desire to learn even more things about
it!

my weblog ... Christian Louboutin Men

Anonymous said...

Hey there, You have done an incredible job. I will certainly digg it and personally suggest to my friends.
I am sure they will be benefited from this site.


Check out my weblog Best Magic Submitter Review

Anonymous said...

Hello! I know this is somewhat off topic but I was
wondering which blog platform are you using for this site?
I'm getting tired of Wordpress because I've had issues with hackers and I'm looking at options for another platform.
I would be great if you could point me in the direction of a good
platform.

My weblog: hotels near letterkenny army depot

Anonymous said...

I love your blog.. very nice colors & theme.
Did you make this website yourself or did you hire someone to do
it for you? Plz respond as I'm looking to construct my own blog and
would like to find out where u got this from. many thanks

My blog diatomaceous earth johannesburg

Anonymous said...

I will right away snatch your rss feed as I can't find your
e-mail subscription link or e-newsletter service.
Do you have any? Please allow me recognize so that I
may subscribe. Thanks.

Also visit my website ... Cheap Christian Louboutin Shoes

Anonymous said...

Howdy just wanted to give you a quick heads up and let you know a few of the pictures aren't loading correctly.

I'm not sure why but I think its a linking issue. I've tried it in two different web
browsers and both show the same results.

Here is my homepage :: get rid of ance scars

Anonymous said...

Hi this is kind of of off topic but I was wondering if blogs use
WYSIWYG editors or if you have to manually code with
HTML. I'm starting a blog soon butt have no coding expertise so I wanted to get guidance from someone with experience.
Any help would be greatly appreciated!

Feel free to surf to my homepage :: Starlink Driveway Wireless Headphone Reviews

Anonymous said...

Everyone loves what you guys are usually up too. This sort of clever work
and reporting! Keep up the good works guys I've you guys to my
personal blogroll.

Visit my blog Chemist Direct Healthcare Products

Anonymous said...

An intriguing discussion is definitely worth comment.
I believe that you should publish more about this
subject, it might not be a taboo matter but generally folks don't speak about
these issues. To the next! Best wishes!!


my web page; acai berries ()

Anonymous said...

I couldn't resist commenting. Perfectly written!

My blog post ... nutrition coach certification

Anonymous said...

The cheery game maker is confident the new functions of the 3DS, including a gyro sensor
and infrared capabilities as well as 3D interface, will be made good,
creative use of in its games, since a good many DS titles used its extra functions to its fullest.

This, obviously, depending on how popular the TBG gaming community becomes, but with close to 1000 members after its first year, the rate of expansions may be
sooner than they have planned. Add to the huge popularity of
how often people are on Facebook and you have a winning gaming platform ripe for making
people become quickly addicted to the game.

Here is my weblog Empire Rome Rising Hack (empireromerisinghack.wordpress.com)

Anonymous said...

I am truly happy to read this weblog posts which
consists of tons of valuable facts, thanks for providing these statistics.


Here is my website ... garcinia hca diet

Anonymous said...

I do not know whether it's just me or if everybody else experiencing problems with your website.
It appears as if some of the text in your posts are runniong off the screen. Can somebody ellse please provide
feedback and let me know if this iis happening to hem too?

This could be a problem with my web browser because I've had this hzppen before.
Appreciate it

Feel free to visit my web page: Mobile Reviews

Anonymous said...

Remarkable ideas. Investigation has shown that it is valuable towards appetite suppression fat burning up and
increased vitality metabolism. Yacon Syrup is certainly loaded with significant vitamins, fibers, minerals and some other healthy vitamins the body requires.

Today the question is what just are the benefits to choosing
and employing Garcinina? Let's acquire a closer
look at Yacon Syrup success stories

Review my page; yacon root max ()

Anonymous said...

Yoս wіll fіnd superb electronic digital variants ߋf
ѕuch cards along wіth much more online,
or trʏ out sitting yߋurself Ԁown and dealing yοurself ɑ handheld or couple, juѕt maƙing use
of any normal deck ߋf cards. More resources fօr the actual Recurrent Kitchen table гegarding Elements, yoս ϲan call at your nearby library,
hormone balance instructor, ߋr even е-book store. *Oldd Chines lamguage mmen ɑnd women conceived pkastic іn 9th century.



My blog - solitaire download (www.sinsunnakji.co.kr)

Anonymous said...

*They elp develop reliable abilities аs wеll аs requite
mental stimulation. Τhe rest of the credit
cards аrе սsually workеd ԝell within teams оf aboսt thrеe onto f throw out ton. Free of charge cares νia the internet mаy do
not really ѕuggest thаt one death person caan take advantage ߋff thеse.


Heree iis mʏ webpage: free classic solitaire download

Anonymous said...

I wаs suggested thiѕ website byy my cousin. I аm not suге whether this post iѕ written by him aѕ no one elsе know sսch detaled about my pгoblem.
You are incredible! Τhanks!

Also visit my webpage clash of Clans hack xsellize

Anonymous said...

It's just like any other data transferring devices.
These applications are proved to be racing rivals hack
plugged into a danger situation. For example, while also providing a huge financial success, so you'll be obtaining a web host is must for
every mobile platforms. 1 Make sure you go through the technologies installed on a PC/desktop computer,
and then play them in your path to debt consolidation.

my blog post racing rivals cheats

Anonymous said...

Wow, amazing blog structure! How lengthy have you ever been blogging for?
you made running a blog look easy. The overall glance of your web site is fantastic, let alone the content!


Feel free to surf to my website; webpage - -

Anonymous said...

I hardly leave a response, bbut after looking at a lot of remarks on this
page "It pays to check the fine print on low-rate offerings".
I do have some questions for you if it's okay. Could it be simply
me orr does it look like like some of these responses appear like they are written by brain dead individuals?
:-P And, if you are writing aat additional places, I'd like to keep
up with anything fresh you have to post. Could you list of the complete urls of all your shared pages like your linkedin profile,
Facebook pagge or twitter feed?

Here is my website - legal matters