For some people, getting out of a mortgage early is a realistic option, especially if they are doing so to lock down low interest rates. It’s definitely a good idea to lock down a low rate, so if you are looking at facing mortgage penalties to do so, you can do a lot to limit those penalties or avoid them all together.
Common practice has banks comparing your interest rate to their current interest rate for the term closest to the amount of time left on your mortgage. Since there’s no rule about which rate to use, they can use any rate they want. With a 2% different between one- and five-year rates, that’s a lot of wiggle room. – Money Sense Magazine
So what can you do to combat this? Well, if you know the annual prepayment amount for your mortgage (usually between 10% and 20% of mortgage), ask your lender to apply that before they calculate the IRD (Interest Rate Differential). If you’re working with a good lender, they’ll do this anyways, but unfortunately sometimes you need to ask.
You can also do your research and check out the other options out there, shopping around is recommended for renewals. You can always remind your lender that you’ll take your business elsewhere if they are making this a painful process for you.
It’s always important to be diligent when it comes to your money! Bottom line: always do your research and explore your options. If you have any questions about this topic, or mortgages in general, feel free to contact me or tweet me.
You may also want to explore my ‘Adopt My Mortgage’ option as well. Some buyers prefer to work with their bank only to figure out down the road that they haven’t heard from their bank in years and while some around them are saving money, they are stuck. As consumers we mean well, but sometimes we just don’t know what we don’t know. And other times, we are steered in the wrong direction by those we trust. I understand and I’m here to help, give me a shout.
