Let's talk mortgage penalties! We all believe when buying a house that it's our forever home, but life events happen, and specifically for military families, posting happens!
Some lenders will waive a mortgage penalty if you to pre-pay (or break) your mortgage early with a posting message for a military relocation, however it's important to know there are different "levels" of coverage and whether your lender even offers this opportunity.
Penalty Waiving - for military members with a posting relocation message:
- Some lenders will waive the penalty if you purchase another home through them within a set number of days (now it's important to think if you'd be posted somewhere that you don't want to buy!)
- Some lenders will give you a reduced penalty if you do not purchase another home through them within a set number of days (same note as above - think depressed or overinflated markets, or short term postings - will you buy again?)
- Some lenders will waive the penalty regardless if you purchase another home through them or not
- Some lenders will waive the penalty only if you are posted outside of Canada (OUTCAN)
- Some lenders will provide you with a reduced penalty
Penalty Waiving - for military members without a posting relocation message:
- Some lenders will provide you with a reduced penalty for any reason (not necessarily for a posting message, but for any reason to pre-pay or break your mortgage early)
It's important to note not all lenders offer penalty waiving.
And occasionally, with some who do, you may still have to advocate for yourself when exercising that option.
Your mortgage professional should provide you with the information on the lender when you first get your mortgage so you know what to expect, and if there is no penalty waiving, find out what other benefit is going to offset it.
For example...
If your application is not a fit for some lenders but is a fit for another, the benefit is your mortgage is going to be approved. It could come down to mortgage or no mortgage.
Or maybe the other lender allows income that isn't traditionally counted on an application (ie. Child Tax Credit) or a higher debt to income ratio, so that you can afford the house you want with that truck payment that is reducing your borrowing power.
Or perhaps it's a lower interest rate which will save you money, or a mortgage product that will work better for your financial goals.
Whatever the reason is, information is key. Knowing in advance will help reduce surprises later.
TIP 1: Work with a mortgage professional you trust and will be there for you later to answer questions. It's your biggest investment! Remember - interest rate is not the only important factor to your mortgage.
TIP 2: Some lenders calculate penalties using a different formula and therefore the penalty may be less than other lenders. This is important to know if your mortgage is going to be with a lender that does not offer penalty waiving with a posting message.
TIP 3: Did you know that prepayment penalties for a mortgage with a variable rate is typically only 3 months interest, to break for any reason? That can save thousands in comparison to a penalty with a fixed rate mortgage. Talk to your mortgage professional about what type of interest rate is right for you.
Got some questions? I'm here for you!
Sarah Nixon-Miller, Mortgage Broker
Toll-free Canada, rings direct to my cell: 1-844-315-6609
sarahnm@mortgagegroup.com