Two lengths of time are important to consider regarding mortgage. Those two lengths of time are your amortization period and the term in Oakville. A mortgage term is shorter than the amortization period (that is, usually 20 to 30 years, for the first-time buyers). A common mortgage term is 5-year with a fixed mortgage interest rate. A mortgage agent in Oakville can suggest whether a fixed or variable mortgage term will suit your needs. It is usual for Canadians to have several terms over their whole amortization period. Once the term ends, you can consider a few options concerning your mortgage. Here are those:
- Renew your current lender
- Switch to a new lender
- Pay off your entire mortgage
Nevertheless, paying off the entire mortgage doesn’t suit Canadians more often than not. A few Canadians have enough money to pay off the entire mortgage in Oakville. However, you can pay off the entire mortgage at renewal if you receive windfall cash.
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Is Paying Off the Entire Mortgage at Renewal the Best Option for You?
We shall answer this important question to you. Before we answer, you must understand the following:
Mortgage Renewal:
Mortgage renewal is the process to agree on a new mortgage term with your lender. Typically, borrowers receive mortgage renewal letters from lenders 21 days before their mortgage term expires. This letter outlines the new term alongside the interest rate for mortgage renewal if borrowers prefer to renew. Once you accept the terms, your mortgage restarts for another period. The majority of lenders in Oakville allow Canadians to renew their mortgage between 120 to 180 days before their term expires.
Prepayment Penalties:
You may ponder paying off your mortgage at renewal instead of committing to new terms. Doing it means contemplating prepayment penalties. Prepayment penalty includes a fee for breaking your mortgage term and square your mortgage.
Additionally, you will pay a prepayment penalty while you refinance your mortgage in Oakville. Generally, a prepayment penalty is smaller when borrowers are at the end of their mortgage term. Nevertheless, it is vital to calculate the exact prepayment penalty because there is no certainty about the amount. You may need to pay thousands or tens of thousands of dollars as a mortgage penalty. A mortgage agent in Oakville can help you whether to pay this penalty and pay off the mortgage or not.
Switching to Another Lender:
You may not want to renew your mortgage term with the current lender. In that case, you also have the option to refinance your mortgage with another lender. Refinancing a mortgage means taking a new mortgage with a new lender. Then, you can use that money to pay off your previous mortgage to the previous lender. The benefit of refinancing is securing the lowest possible mortgage rate and applying for a larger mortgage. However, refinancing is advantageous if you have sufficient equity in your home.
The drawbacks of refinancing include paying extra fees, mentioned below:
- Setup fees with the novel lender
- Fees to discharge the last mortgage and register for a new mortgage
- Transfer/assignment fees from your new lender
- Appraisal fees to corroborate the property value
- Administration fees and prepayment penalties
In some cases, the current lender covers some costs to refinance.
Finally, the Answer You Were Waiting for:
The easiest route for you is to renew your mortgage. However, you cannot expect to get the most competitive interest rate with mortgage renewal. On the other hand, refinancing means a lower interest rate but more work to do. If you have the cash to pay off your mortgage alongside the prepayment penalty, you can become mortgage-free. Connecting with a real estate lawyer helps you go through the process if you choose to go this way. You should pay off your entire mortgage at renewal in Oakville if you don’t need to make mortgage payments anymore.
Conclusion
Two lengths of time are crucial for mortgage borrowers to consider, including the amortization period and term. The first-time buyers have a longer amortization period typically, that is, 20 to 30 years. Moreover, typically the mortgage term for borrowers is 5 years with a fixed interest rate. When it ends, mortgage borrowers have different options to consider. Those options are renewing the term, switching to another lender, or paying off the entire mortgage. Paying off the entire mortgage instead of committing to the new terms imposes prepayment penalties. Refinancing is a favourable option if you have sufficient equity in your home.
However, you should pay off the entire mortgage at renewal alongside prepayment penalties to become mortgage-free if you can. Lastly, a mortgage agent in Oakville can give you the best suggestion concerning paying off the entire mortgage at renewal.
Patrick Romann (https://www.patrickromann.ca/) is an independent Mortgage Agent in Oakville dedicated to helping you build and execute the best mortgage plan with mortgage services.
