Mortgage features vary by lender, term, product and more. At one point, they were quite standardized; however, now there are copious amounts of options to choose from – but the catch is, you need to understand them and their implications. The following are the most important mortgage features for us at SPIN (specifically, what we look for on our personal mortgages).
Standard Penalties
We like standard penalties because we understand that people’s circumstances change, and it’s imperative that you have a sound exit strategy in the event that you break your mortgage. The standard penalty on a variable rate mortgage is equal to 3 months interest (we’re big supporters of variable rates given the penalty predictability). For a fixed rate mortgage, it’s the greater of 3 months interest or the IRD (interest rate differential). You need to be careful with how an institution calculates this penalty, which you can learn about by reading “Mortgage Penalties are the Worst”. Anything different than this would be considered atypical and needs to be fully understood prior to proceeding.
Portable and Blend-able Mortgage Features
This is also very important. If you decide to sell your existing place and buy a new one, you’ll want the option to port your mortgage. By doing this, you can avoid a penalty altogether. A basic port would imply that you’re keeping the mortgage amount identical. However, let’s assume you need more money. In this case, you need the mortgage to be blendable as well. This allows you to add the required amount of money to your mortgage at prevailing rates which, by way of a simple weighted average, will give you a blended rate. Again, by doing this you are able to avoid paying a penalty. If your lender does not offer these mortgage features, then you will have a penalty to pay in the event that you change things up during the term.
Standard Charge
A standard charge implies transferability – specifically, you can renew or transfer your mortgage to another institution without fees. The article “What You’re Not Being Told About Your Mortgage Renewal” identifies the potential cost issue that goes with not being registered as a standard charge. The other option is referred to as a collateral charge. These are not transferrable. Banks love these. Why? Because it’s harder for you to leave and costs YOU money. That being said, we don’t hate collateral mortgages. When you’re combining a mortgage with a HELOC, for example, they have to be registered as such and they make perfect sense. Ask the standard vs collateral question just so you know what you’re signing up for.
Pre-Payment Mortgage Features
We consider these important as it’s nice to pay your mortgage down quicker without any penalties; however, in reality, most people just don’t have the ability to take full advantage these days. Therefore, it’s a key feature, but its importance will depend on your cash position and ability to pay it down. Typical pre-payment amounts range from 5-20% of the principal amount per year with the ability to increase payments by 5-100% as well.
These are the most important mortgage features to us at SPIN. There are a host of products with restrictions out there as well. Some are totally benign, while others are not. “What Do Mortgage Rates Even Mean These Days” and “Common Rate Traps” address the confusion in the market with dubious advertising tactics and will help educate you on what to look for when shopping for mortgage features online.
Oh… and we should mention… a free chequing account is NOT an important feature when shopping for a mortgage.
