Know the fine print of your mortgage

The fine print in your mortgage may have costly or irritating restrictions that you won’t know about unless you read or ask a mortgage professional.

Some examples:

* Restrictions on breaking your mortgage before the term is up
* Restrictions on breaking your mortgage for the first 3 years
* A penalty surcharge of 1% for mortgages broken within the first 12 or 36 months
* “Reinvestment fees” (on top of mortgage penalties)
* Interest rate differential (IRD) penalties based on an onerous bond yield calculation
* IRD penalties on variable-rate mortgages (usually IRD penalties apply to fixed mortgages)
* IRD penalties based on a costly posted vs. discounted rate formula
* Inability to port unless the purchase and sale take place on the exact same day (which can be hard to arrange)
* A poor conversion rate guarantee
* No refinances during the first year
* No free switches (for transfer-eligible mortgages)
* Amortization limits of 25 years
* Minimum amortizations of 15-18 years
* Restrictions on converting from a variable rate to a fixed rate for the first six months
* No ability to break your “open” HELOC without a penalty
* Inability to port across provincial lines
* High administrative fees when porting
* 100% clawback of cash-back if the mortgage is broken before maturity
* Requirement for a full banking relationship with the lender
* No lump-sum pre-payment privileges
* No annual payment increase allowance
* Pre-payments restricted to one specific day a year (instead of any payment date)

And the list could go on…

Keep a lookout for restrictions like this when comparing different mortgages.

It’s even more important when sizing up cut-rate mortgages because the lower the rate, the greater the likelihood that a mortgage will be somehow restricted.

from www.canadianmortgagetrends.com