Thursday, April 17, 2014

When the banks say "gotcha"

Recently we have all seen the 5 year fixed rate of 2.99% being advertised by BMO. The promotion ends today. They are offering a rate that former finance minister Flaherty would not allow when he was in office. It sounds like a great deal but is it? Did you know that the only way out of this mortgage is by selling your house? The only other way is to pay all the interest due until the mortgage expires. Did you know that the pre-payment privileges that we take for granted are cut in half? What may look like a great deal can be one of the times when you know someone at the bank is saying "gotcha". This is one reason why it is so important to consult a mortgage professional rather than trying to go it alone.
You want some of these record low rates on the market but you’re locked into a mortgage. Just break it, right?
Not so fast, there’s a key question you need to ask before you commit to break a mortgage: how much will it cost you? Actually, it’s a question you should be asking before you sign up in the first place.
Don Hurman, a 64-year-old from Okotoks, Alta., learned the hard way when he incurred a $10,000 penalty after selling his house halfway through a five-year mortgage term. Some mortgages let you port the loan to a new home but Mr. Hurman was forced to break his and pay what is called the interest rate differential.
Here's an article that delves more into this problem.
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