Hidden Costs and Mortgage Penalties – How to Manage Them
A lot of home buyers make the mistake of overlooking some critical costs when they are budgeting for a Canada mortgage. When you opt for a home mortgage for the first time, remember that the monthly payments and the down payment is not the only thing that you should plan for.
There are a certain amount of closing costs involved, which can make up for a considerable amount of cash in the long run. Furthermore, there are implications when you sell your home in the future or break off your mortgage for any reason. Sometimes, accelerating your payments and paying off the mortgage early also come with some negative penalties attached.
Keep reading to find out all the extra charges and hidden costs that are associated with a mortgage plan.
The Closing Costs
Typically, a lot of lenders ask for an additional 1.5% of purchase price when closing the mortgage, in order to check that the lender is credible enough to afford the mortgage rates in the long run. When you are buying a home, there are additional costs such as the land transfer cost and home inspection etc also involved in the deal; you need to account for these charges in time if you want to avoid any other problems down the road.
If you are unsure on what additional charges you will have to pay, you can calculate the overall budget through the official listing at the Canada Mortgage and Housing Corporation’s Official Website. Your broker will also guide you in the process and help you assess the total costs involved in purchasing and getting a mortgage for a particular property.
The Mortgage Insurance
It is possible to get a mortgage loan even when you do not have the required 20% down payment in store. However, you will still have to pay at least 5% of the total amount, and also opt for mortgage insurance. The monthly payment for the mortgage insurance may make your overall payments rise a little higher than expected; thus, it is important that you are aware of this cost before you opt for a Canada mortgage.
It is important to stay aware of the risks of penalization when you are locking in with a mortgage that stretches to 25 years on average. In case you need to break the mortgage early, your lender or bank will charge you with a penalty amount.
This penalty depends on a number of factors, and you either have to pay three months worth of interest or follow the mode of payment through a pre-defined IRD (Interest Rate differential).
Also, if you have opted for a closed mortgage, paying off the loan early will also result in penalization. It is important that you discuss all these risk factors and their implications with your mortgage broker beforehand so that you are saved any unnecessary hassle later on.
Mortgage rates in Canada now are looking more attractive and are a lot more affordable compared to the past. Therefore, it is best to lock in on a feasible rate today so that you can enjoy minimal payments tomorrow! Best of luck!