Life changes and so does your mortgage! There are a number of reasons to need to re-evaluate your loan. However, before you jump into making a change, it is important to understand that there can be penalties incurred when you break your mortgage before the term is up. Depending on your mortgage product, these penalties can be quite extensive and are good to calculate before making changes.
Now you may be wondering “why would someone make a change to their mortgage?” Let us explain! Below are some examples of why you may make an adjustment to your mortgage.
The Sale and Purchase of a New Home
If you already know that you will be looking at moving within the next 5 years, it is a good idea to look into the option of a portable mortgage. Keep in mind, not all mortgages are portable. If you think this is a possibility in your near future, it is best to seek out a mortgage product that allows this. Be aware that some lenders may purposefully provide lower interest rates on non-portable mortgages but don’t be fooled. Knowing your future plans will help you avoid expensive penalties from having to move your mortgage. In addition, whenever a mortgage is ported, the borrower will need to re-qualify under current rules to ensure you can afford the “ported” mortgage based on your income and the necessary qualifications.
Desire to Utilize Equity
Another reason you might need to change your mortgage contract is to obtain the valuable equity you have built up over the years. In some areas, such as Toronto and Vancouver, homeowners have seen a huge increase in their home values. Taking out equity can help individuals with paying off debt, expand their investment portfolio, buy a second home, help out elderly parents or send their kids to college. This is best done when your mortgage is at the end of its term, but if you cannot wait, be sure you are aware of the penalties associated with your mortgage contract.
To Pay Off Debt
Debt is part of life for many of us, but that doesn’t mean you are stuck! If you have accumulated multiple credit cards and other debt (car loan, personal loan, etc.), refinancing your mortgage contract to roll these debts in your existing loan can help you pay them off over a longer period of time at a much lower interest rate than credit cards. In addition, it is much easier to manage a single monthly payment than half a dozen! When you are no longer paying the high interest rates on credit cards, it can provide the opportunity to get your finances in order.
To Get a Lower Interest Rate
Given the current economic situation, one of the most common reasons that Canadians are currently changing their mortgage contracts is to obtain a lower interest rate. With the market rates being at the lowest they have been in years (which is slated to continue until 2022 according to the Bank of Canada), many Canadians are wanting to take advantage of decreased interest payments. However, it is important to understand that not all families or mortgages will benefit from a lower interest rate.
Before proceeding, contact your Dominion Lending Centres Mortgage Professional to help you crunch the numbers and determine the penalties and whether or not it is worthwhile to change your mortgage for a lower rate.
Cohabitation, Marriage and/or Children
Another reason to update your mortgage agreement can have to do with your life partner and/or children. Perhaps you have a partner you have been with a long time, and now you’ve decided to move in together. If you both own a home and cannot afford to keep two, or if neither has a rental clause, then you will need to sell one of the homes which could break the mortgage.
Divorce or Separation
Just as moving in together can have implications for your mortgage, the same goes for separating. When couples separate it can mean changes to the mortgage to divide the equity in the home. In cases where one partner wants to buy the other out, they will need to refinance the home. Both of these break the mortgage, so be aware of the penalties which should be paid out of any sale profit before the funds are split.
Major Life Events
In addition to marriage or divorce, there may be other life events that happen unexpectedly and out of our control, including illness, unemployment, death of a partner or someone on the title. These circumstances may result in the home having to be refinanced, or even sold, which could come with penalties for changing or breaking the mortgage contract.
Removing Someone from Title
Did you know that roughly 20% of parents help their children purchase a home? Often in these situations, the parents remain on the title. Once their son or daughter is financially stable, secure and can qualify on their own, then it is time to remove the parents from the title.
Some lenders will allow parents to be removed from title with an administration and legal fees. However, other lenders may say that changing the people on Title equates to breaking your mortgage resulting in penalties. If you are buying a home for your child and will be on the deed, it is a good idea to see what the mortgage terms state about removing someone from title to help avoid future costs.
Pay Off the Mortgage
Wahoo!!! You’ve won the lottery, got an inheritance, scored the world’s best job or had some other windfall of cash leaving you with the ability to pay off your mortgage early. While it may be tempting to use a windfall for an expensive trip, paying off your mortgage today will save you THOUSANDS in the long run - enough for 10 vacations! With a good mortgage, you should be able to pay it off in 5 years, thereby avoiding penalties but it is always good to confirm.
When it comes to your home and your mortgage, life happens and it is not always within our control. That’s why it is best to seek the advice of an expert. Dominion Lending Centres has mortgage professionals across the country who want to be part of your journey and help you make the right change and ensure you end up with the best mortgage product for your unique needs.