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The most usual situations that will lead to a penalty (Note: This is only a part of a series of critical articles on the subject of mortgage penalties. You may have an issue that is better answered in one of our other features. The complete list of articles is at the end of this article for your reference.) There are penalties that are charged by lenders on loans that are paid off prior to maturity. There are some cases where these kinds of penalties can be avoided. Of course, there are also situations where charges such as these cannot be avoided at all. The sale of your home: Selling your home does not mean that you necessarily have to break your mortgage contract and be subject to penalties (find out if your mortgage is portable, for example), but if you are not going to buy another home, or are moving outside of the country, you will have to pay the early payment penalty. There may be a solution; if you read our article How to lower or avoid a penalty?, you may be able to save some money. Refinancing for debt consolidation: Most people use the mechanism of mortgage financing in order to consolidate and lower their debt. It is a very good solution for most people, since it allows them to straighten up their financial situation. Sometimes, it is a very good idea to take out a second mortgage instead, especially if you do not have a lot of time left on your original mortgage. You should contact a qualified mortgage broker, who is able to make all of the calculations to find the best solution for your individual situation: decide upon a second mortgage or refinance your existing mortgage. Refinancing for renovations: Renovating often requires more money to have the work done. Here are three ideas that can save you money if you are planning refinancing for renovations: Certain work is urgent and requires immediate funds. In this case, it would be good to see if you can finance the work temporarily with a personal loan or a line of credit. Then, you can do the refinancing when you have to renew your mortgage anyway. If you are updating your home so that it will sell, or sell for a higher price, you may have the possibility of using an open mortgage to finance the renovation. In this case, you will not have a prepayment penalty on that mortgage or when you get the second home loan. Don’t forget that if you want to renovate property that you are going to buy soon, there are some mortgages which have a renovation loan option. You can then borrow the money immediately for renovations you will do in the future. Marriage separation: In the case of separation, the most common practice is that one of the partners buys half of the home from the other partner. In this case, it may be possible to request a balance transfer rate for additional funds. Sometimes, this will not work because the income of the one partner who wants to take over the mortgage is not enough to qualify him or her for a new mortgage. If you have such a problem, we suggest you contact our office to see if you can avail yourselfof a product called a “self declared revenue loan” to meet your mortgage needs. You will probably have a penalty for breaking the loan contract, but you will still have your home. Execution of a will: In cases of death, often a property will have to be sold in order to satisfy the probate requirements. There are some lenders that do not charge a penalty in these cases; you have to find out from the lender. Carefully consider your options Before considering any decisions regarding your mortgage, you want to make sure you have taken any steps to avoid a penalty. It may be unavoidable, but the best thing to do is to consult with an accredited mortgage counselor (CHA) to find out all the options available to you. These penalties cost thousands of dollars; it is definitely worth a home owners time to investigate the best way to proceed.
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Gregory is an Accredited Mortgage Professional (AMP). To get more information on mortgage rates - taux hypothèque, please visit: Hypothèques - Mortgage Intelligence
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