Type & Term: Most common are closed mortgages ranging from months to 5 years, a few lenders have terms up to 15 years. Typically, 6 month and 1 year mortgages can be open or convertible. A true open mortgage can be paid in full at anytime without penalty, while a true convertible mortgage can be changed to any longer closed term with the same institution and this privilege has no penalties either.
Commitment Period: This period protects ones interest rate in times of market instability. Sixty day rate guarantees can be negotiated and this provides peace-of-mind when entertaining a long closing. Meanwhile the borrower will benefit 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 one is typically allowed to make a lump sum payment 10% to 15% of the original loan amount. Increasing your monthly, or bi-weekly, payments by the same percentages is also allowed. These extra payments directly reduce the principal outstanding, subsequently one has shortened the amortization. Negotiating a 20% prepayment is not uncommon, as well as being allowed to make this payment once annually at anytime.
Weekly & Bi-Weekly Payments: For the most part all lenders offer this. It is important though that one expresses they wish 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’ll 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. Otherwise you will typically be charged a three month interest penalty to pay out your existing mortgage.
Interest Adjustment Date: 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.
