If you’re a homeowner in Ontario, chances are you took out a loan to pay for your house. That loan, when taken out from a bank or other lender to pay for a first home, is called a first mortgage. First mortgages are paid back with a set interest rate over an amount of time agreed to by both the homeowner and private mortgage lender.
Owning a home is often considered to be the biggest investment one can make; however, most people do not have the funds required to make such an important purchase: that’s where a first residential mortgage comes in.
First mortgages see the mortgage lender pay the money in full to the selling party, while the homeowner pays the money back to the lender as their first mortgage over an agreed period of time.
While first mortgage loans in and across Ontario should not be taken on lightly, circumstances may require you to break out of your first mortgage. If you are looking to break out of your mortgage, you should contact the mortgage lender immediately to get an understanding of the conditions. The penalties of breaking out of first mortgages often include interest rate differential (IRD) charges, which are calculated by the mortgage lender to compensate for the loss of money through the mortgage interest rates, as a result of the early breakout. First-time home buyers considering breaking out of their first mortgage should get help from a professional mortgage advisor who can help them calculate the necessary penalty amount and help them make an educated decision.
When it comes to something as important as first mortgage loans, you should always thoroughly research the lender before meeting them.
It’s vital that potential borrowers determine a mortgage loan amount that lets them both buy their home and repay the sum to the mortgage lender. Firstly, examine your income and debts. Based on your remaining debts, determine a loan amount that you can repay comfortably.
The amount of time it takes to pay back first mortgages can vary between homeowners. Paying back the loan over a short period of time will help to save money on the amount being paid but may risk stretching your monthly budget to the limit. In comparison, paying your first mortgage over a longer period will mean paying more interest, but allow for greater financial freedom.
When searching for a suitable first mortgage loan, make a list of trustworthy mortgage lending institutions, determine the needed loan amount, and then compare the first mortgage interest rates being offered by various mortgage lenders you’re considering. This way, you’ll be able to figure out the current market interest rate.
Breaking out of first mortgages may be inconvenient, but when you consider the future, it may just be the best solution. It can potentially save homeowners thousands of dollars over the course of their mortgage.
Most mortgage lending institutions have penalties for breaking out of first mortgages before the date of maturity so, depending on the penalty, there may not be an advantage to doing so. You should speak with a mortgage advisor who can calculate the penalty and help you to weigh your options. They will help you see what works best for you before you take steps towards deciding whether to break or renew your current first mortgage loan.
| Client’s Current Mortgage | Canadalend.com Mortgage | Savings | |
|---|---|---|---|
| First Mortgage Amount | $500,000 | $500,000 | |
| Interest Rate | 4.99% | 2.95% | |
| Term (Years) | 5 | 5 | |
| Amortization Period (Years) | 25 | 25 | |
| Monthly Payment | $2,905.18 | $2,352.42 | $552.76 |
| Remaining Term (Months) | 24 | 60 | |
| Total Remaining Payments for 24 months | $69,724.32 | $56,458.08 | $13,266.24 |
*For representation purposes only. Rates subject to change without notice.