The mortgage differential penalty can be quite expensive. If a mortgage is at 5% interest rate and you have three years left in your term, the bank will use the difference between the agreement rate and the current market rate to calculate the penalty. Using the 5% case above, let’s say the current 3-year mortgage is available at 3.5%. The bank will charge the difference between 5% and 3.5% for the balance of your term. The Financial Post
Mortgage Fine Print: how to save money and let your banker know who’s boss!
March 2, 2010
Many home buyers go into the bank with one phrase going through their heads “I’m talking down this banker to get the lowest interest rate possible.” But there are other ways to reduce the cost of your mortgage that often times go unexplored. And they’re nestled in the fine print…so here’s a few tips for the everyman.
1. Accelerated payment options: don’t pay your mortgage on the first of the month!
If you can, make your payments every two weeks or heck, why not every week? Overall you pay about the same amount per month, but because of the increase in frequency of the payments, the interest you are charged gets reduced!
2. Renegotiate the interest rate…even before it comes due!
You know that guy who’s always bragging about the lower-than-conceivably-possible rate he wrested out of his banker through his savvy negotiation skills. Well, there might be clause in your mortgage to renegotiate the rate and blend it with the current rate you have.
3. Put any extra cash you have against your mortgage– penalty free!
Check if there is a clause in your mortgage that allows you to make lump-sum payments in addition to your monthly (or hopefully, after reading this article, bi-weekly payments).
4. Got a raise at work? See if you can increase your regular payment!
Some mortgages will include a clause for increasing the monthly payment by a certain amount (ranging from 15% to 100%). See if your’s does!
5. Getting out of your mortgage and how penalties work
In some cases, the penalty is simply three months of interest, but in other cases it is calculated based on an interest differential penalty:
6. The Rainy Day clause
Check to see if your mortgage allows you to miss one monthly payment (interest and principal) per year.
7. Changing amortizations
While bankers may make changing the period of amortization seem like the hardest thing in the world to do, usually it’s just a few clicks of the mouse away. So don’t give up, keep pushing!