The most common situations for mortgage penalties
(Note: This article is part of a series of articles on the subject of mortgage penalties. It is possible that your question on penalties may be better answered in another article. The list of the other articles on penalties can be found at the end of this article.)
There are penalties that lenders charge on loans that are paid off earlier than maturity. There are some cases where these types of penalties can be avoided. Of course, there are also situations where charges such as these cannot be avoided at all.
The sale of your home: Selling your home does not mean that you automatically have to break your mortgage contract and be subject to penalties (check if your mortgage is portable, for example), but if you are not going to buy another home, or are moving to another country, you will have to pay the pre payment penalty. There may be a solution; if you read our article How to lower or avoid a penalty?, you may be able to save some money.
Refinancing for debt consolidation:
Most people use the mechanism of mortgage financing in order to consolidate and lower their debt. It is a very good solution for most people, since it allows them to straighten up their financial situation. Sometimes, it is a better idea to take out a second mortgage instead, especially if you do not have a lot of time left on your original mortgage. You should speak to a qualified mortgage broker, who is able to make all of the calculations to find the best solution for your individual situation: decide upon a second mortgage or refinance your existing mortgage.
Refinancing for renovations:
Generally, when you perform a renovation, you require money to do it. If you are in a situation where you have decided to renovate, think about these ideas that will help you save money:
There is some work to your home that may have to be done right away because it is urgent work. If you have a situation like this, you may want to consider taking out a personal loan or a line of credit instead of negotiating a new mortgage. Once you do a new mortgage, the old loan can be incorporated into the new one and be paid off.
If you are renovating your home so that it will sell, or sell for a higher price, you may have the possibility of using an open mortgage to finance the improvement. In this case, you will not have a prepayment penalty on that mortgage or when you get the second home loan.
If you plan on purchasing a property that needs to be renovated, you can probably arrange to have the renovation financing included in your home loan. There is a special mortgage called the "renovation loan option" that covers these situations. You borrow funds now for renovations you plan once you own the house.
Marriage separation: If a couple separates, the most common thing that happens is that one of the partners will buy out the home from the other. In this instance, most banks do allow the new owner to merely have a balance transfer rate for any additional funds.
This is not a given; the income of the partner taking over the mortgage may not be sufficient to obtain a new mortgage. If you are encountering such a problem, please contact our office to see if you can use a specialized product called a self declared revenue loan to obtain the mortgage.
You probably will still have to pay the early payment penalty, but you can keep your home in this manner.
Executing a will: In the event of death, it is frequently]necessary to sell a home. Certain lenders do not charge a penalty in these cases. You have to investigate.
Carefully consider your options
All mortgage decisions are important, and you should take the utmost care to see if you have done everything you can to avoid a penalty. Sometimes you cannot avgod it, but if you consult with a professional mortgage counselor who is accredited (CHA), you will surely find out the best options available.
Mortgage penalties costs thousands of dollars; it is worth the time and troubleit may take some time to find out how to avoid them.
About the Author
Gregory is an Accredited Mortgage Professional (AMP). To get more information on mortgage rates - taux hypothecaire, please visit: Mortgages - hypothèque
