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The Devil In The Fine Print

Devil-in-the-fine-printMortgages sometimes have costly or irritating restrictions that you won’t know about unless you read the fine print or ask a mortgage professional.

Some examples:

  • Restrictions on breaking your mortgage before the term is up
  • Restrictions on breaking your mortgage for the first 3 years
  • A penalty surcharge of 1% for mortgages broken within the first 12 or 36 months
  • “Reinvestment fees” (on top of mortgage penalties)
  • Interest rate differential (IRD) penalties based on an onerous bond yield calculation
  • IRD penalties on variable-rate mortgages (usually IRD penalties apply to fixed mortgages)
  • IRD penalties based on a costly posted vs. discounted rate formula
  • Inability to port unless the purchase and sale take place on the exact same day (which can be hard to arrange)
  • A poor conversion rate guarantee
  • No refinances during the first year
  • No free switches (for transfer-eligible mortgages)
  • Amortization limits of 25 years
  • Minimum amortizations of 15-18 years
  • Restrictions on converting from a variable rate to a fixed rate for the first six months
  • No ability to break your “open” HELOC without a penalty
  • No pre-payments within 30 days of discharge
  • Inability to port across provincial lines
  • A “no rate drop” policy after approval
  • Monthly instead of semi-annual interest compounding on variable-rate mortgages
  • High administrative fees when porting
  • 100% clawback of cash-back if the mortgage is broken before maturity
  • Requirement for a full banking relationship with the lender
  • No lump-sum pre-payment privileges
  • No annual payment increase allowance
  • Pre-payments restricted to one specific day a year (instead of any payment date)

And the list could go on…

Keep a lookout for restrictions like this when comparing different mortgages.

It’s even more important when sizing up cut-rate mortgages because the lower the rate, the greater the likelihood that a mortgage will be somehow restricted.