Buyer Tips

Mortgages:


6 Important Things You Should Know.


TYPE AND TERM:
Most common are closed mortgages ranging from 6 months to 5 years and a few lenders have terms up to 10 years. Typically, 6 month and 1 year mortgages can be open or convertible. A true convertible mortgage can be changed to any closed term mortgage with the same institution and this privilege has no penalty.

COMMITMENT PERIOD:
This period protects one's interest rate in times of market instability. Ninety day rates guarantee are most common whereas one hundred and twenty days rates guarantee can be negotiated providing a peace of mind when entering a long closing. The borrower benefits from any rate drops in the interim. If your mortgage is up for renewal, the lender typically can set your new rate 30 days prior to the renewal date.

PRE-PAYMENT PRIVILEGES:
On the anniversary of a mortgage, one is typically allowed to make a lump sum payment of 10 to 15 percent of the original loan amount. Increasing your monthly, bi-weekly or weekly payments by the same percentages is also allowed. These extra payments directly reduce the principal outstanding, subsequently one has shortening the amortization period. Negotiating a 20 percent prepayment is not uncommon, as well as being allowed to make this payment at any time during the year.

WEEKLY AND BI-WEEKLY PAYMENTS:
For the most part, all lenders offer this option. It is important though that one expressess wishes for accelerated payments. In effect, this will equal one extra monthly payment per year, and will reduce your amortization period from 25 years to 20 years approximately. You will be mortgage free 5 years sooner!

PORTABILITY:
This is very important for long term mortgages. If your mortgage is not up for renewal, or open, you can transfer it to another qualified property. This will allow you to avoid discharge penalties.

INTEREST AJUSTMENT DATE (I.A.D):
I.A.D. is usually an unexpected expense for most new buyers. Usually mortgages commence on the first of the month, therefore if you are closing in the middle of the month, unpaid interest is due from that date to the end of the month. This adjustment is deducted from the advance on closing day.