I was catching up on my business reading the other day and found this which I thought I should pass along. The article was warning us to watch out for these hidden mortgage issues. Mortgages sometimes have costly or irritating restrictions that you won’t know about unless you read the fine print or ask a mortgage professional.

Some examples:

  • Restrictions on breaking your mortgage before the term is up
  • Restrictions on breaking your mortgage for the first 3 years
  • A penalty surcharge of 1% for mortgages broken within the first 12 or 36 months
  • “Reinvestment fees” (on top of mortgage penalties)
  • Interest rate differential (IRD) penalties based on an onerous bond yield calculation
  • penalties on variable-rate mortgages (usually IRD penalties apply to fixed mortgages)
  • IRD penalties based on a costly posted vs. discounted rate formula
  • Inability to port unless the purchase and sale take place on the exact same day (which can be hard to arrange)
  • A poor conversion rate guarantee
  • No refinances during the first year
  • No free switches (for transfer-eligible mortgages)
  • Amortization limits of 25 years
  • Minimum amortizations of 15-18 years
  • Restrictions on converting from a variable rate to a fixed rate for the first six months
  • No ability to break your “open” HELOC without a penalty
  • Inability to port across provincial lines
  • High administrative fees when porting
  • 100% clawback of cash-back if the mortgage is broken before maturity
  • Requirement for a full banking relationship with the lender
  • No lump-sum pre-payment privileges
  • No annual payment increase allowance
  • Pre-payments restricted to one specific day a year (instead of any payment date)

And the list could go on…

Keep a lookout for restrictions like this when comparing different mortgages.

It’s even more important when sizing up cut-rate mortgages because the lower the rate, the greater the likelihood that a mortgage will be somehow restricted.