Mortgage Tips

Mortgage solutions come in many varieties, and unless you are aware of the options you have, you run the risk of not getting the first or 2nd mortgage that best suits your needs. Knowing what mortgage products are on the market and understanding their various features means you can take advantage of all the benefits these products have to offer. Some of the mortgage solutions and features you might want to know about include:

• Mortgage portability
• Balloon payment mortgages

The Advantages of the Portable Mortgage

Many mortgages have a feature known as portability, which is perfect for homeowners who might have to move before their mortgage matures. With a portable mortgage, you can actually transfer your mortgage, the interest rate, and the terms and conditions to a new property, without having to break your existing mortgage, or pay the resulting prepayment fees. Portability is also a great feature when you are purchasing a new property and the interest rate on your Toronto mortgage is lower than the current market rates.

Mortgage portability terms differ from one mortgage to another, and some are more flexible than others. Be sure to look into your portability conditions, and ensure you are being offered the freedoms you need before transferring your mortgage to a new property. But no matter how much flexibility you have, a portable mortgage will still be:

• Subject to the borrower’s credit approval
• Contingent on a property appraisal of the new home
• Conditional on the sale and purchase occurring within 90 days of each other
• Subject to legal fees like any other mortgage
• Unable to be combined with an assumable mortgage

You may also be able to apply for more financing when you transfer the mortgage, and could also be allowed to pay down a lump sum on the mortgage if your new home does not require as much financing as your old home.

The Balloon Payment Mortgage: What it is and How it Works

With a balloon payment mortgage, you make small regular payments for the duration of the mortgage term, and when the home equity loan or mortgage matures you pay off the balance with a final lump sum installment that is considerably larger than the regular payments you were making. Some balloon payment mortgages are interest only, meaning that through the duration of the mortgage life you only pay the interest, and then the entire principal is due when the mortgage term ends.

The benefit of this type of home financing is that it allows a great deal of financial freedom. Because the regular payments are so low, borrowers have a substantial amount of extra money available that they can invest or use for other purposes. However, to avoid payment shock–not being prepared for a significant increase in the amount of money you owe–it is essential to budget wisely, so that you have enough money to cover the balloon payment when the mortgage matures.