Believe it or not, these days, home owners as well as home buyers are a fortunate lot as not only the interest rates on loans are at a remarkably low, but the expenses of borrowing to purchase a home is abysmally near to the ground. No doubt, this is good news for both home owners and buyers, but it is important to note that lower interest rates and borrowing costs are not the only issues that these people need to consider regarding their mortgage.
In fact, there are several other important aspects that the home owners and buyers need to take into account before they sign a mortgage agreement. This is all the more important because obtaining a mortgage is possibly the biggest loan that majority of the Canadians will ever undertake in their lives. After all, it is a fact that you don't sign an agreement and take up the liability of a six figure amount very often.
According to Mary Gronkowski, the regional sales director with the Mortgage Intelligence Inc., a national mortgage brokerage firm, when people select a mortgage, securing a reasonable interest rate is only a small fragment of the entire process. Comparing the interest rate to the tip of an iceberg, Mary emphasizes that there are lot many issues regarding mortgage loans that one needs to be familiar with and these features may just be 'lying below the surface'. It is important for all the features of a mortgage to be appropriate and suitable to the requirements and desires of a home buyer, both now as well as in the long run, Mary Grownkowski explains.
Thus, one of the mortgage types that home buyers shopping for mortgages may look into is an assumable mortgage.
An assumable mortgage is a type of mortgage that may be passed on from one borrower to another. In fact, an assumable mortgage enables a buyer to undertake his or her mortgage stipulations and payments as a part of the sale of their home. Considering that the interest rates are abysmally low these days, an assumable mortgage may turn out to be an important selling aspect to a prospective buyer at a later period.
With the interest rates dropping to a historic low, many home owners are, in fact, contemplating about refinancing their mortgages. It is important to mention that the issue of refinancing a mortgage at a time when the interest rates are near to the ground will largely depend on the amount you need to spend to break your existing mortgage in comparison to the amount you will be saving in terms of making interest payments.
You should be aware of the fact that in the event of breaking your existing mortgage, you will be required to pay a sum equivalent to the greater of three months' interest amount or the interest rate differential known as IRD. In other words, an IRD denotes a pecuniary fine for making a premature repayment of the entire or a part of the mortgage not taking into consideration the usual prepayment conditions mentioned in your mortgage agreement. Typically, the interest rate differential is computes as the difference between the current interest rate and the fees for the remaining period of the mortgage multiplied by the outstanding principal loan amount and the remaining term of the mortgage.
To make things simple, let us assume that if you had obtained a mortgage worth $100,000 at nine per cent interest rate and have 24 months of the term remaining and you wanted to bargain your mortgage fresh at 6.4 per cent interest rate for the remaining 24 months, you would be required to make an interest rate differential (IRD) payment worth $5,000. In other words, it would be $100,000 X 2.5% of $2,500 X two years $5,000).
Therefore, it would only be wise to refinance your mortgage provided your savings on the interest rates for the remaining term of your existing mortgage is more than the amount you will be required to pay as penalty - the interest rate differential (IRD).
Another approach could be to consider taking a variable rate mortgage. When the interest rates drop and you maintain the same amount of payments towards your mortgage, you will actually be paying more towards the principal amount of your mortgage. This will, in effect, end your mortgage term earlier than what was fixed at the time of signing the loan agreement. Hence, it is not surprising that numerous borrowers are actually taking the benefits of the prevailing low interest rates by hastening payments on their mortgages. There are several lenders who would permit you to increase your periodic payments twice over or even consent to accepting lump sum payments equal to around 20 per cent of the principal on one occasion a year.
Therefore, it is important that prior to signing a mortgage agreement you should always ensure that you realize the amount as well as the regularity of payments you lender will permit you to make. There may be some mortgage lenders who will offer you the option of missing out making a payment without having to pay a penalty for it. As far as the current market is concerned, this option may prove to be quite helpful.
On the other hand, there are quite a number of mortgages that offer you the option of portability. This facility enables you to pass on your existing mortgage on to a new real estate property. This is also a great advantage when you have a mortgage at the prevailing low interest rates.
Nevertheless, you should bear in mind that all the advantageous features are not similar. For instance, there are mortgage lenders who will give you the option to transfer your mortgage in as many as 120 days, while most of them would only consent to not many days or maybe just a week's time.
Commenting on this aspect of mortgages, Mary Gronkowski says that selecting the appropriate mortgage entails taking the fact where you are presently and where you are likely to be in the next three to five years from hence into account. She suggests that seeking the help of professionals would be of immense advantage in deciding what type of mortgage suits your requirements and desires now as well as in future.