Statistics show that 83% of people break their mortgage before their mortgage matures, incurring penalties as a result.
Those penalties can sometimes be ominous. Often, the initial mortgage type and its penalties can prevent the mortgage from being broken at all. Knowing the reasons for a possible break in your mortgage might help you avoid them in the first place.
Here are the 10 reasons why people break their mortgages:
1. Sale and purchase of a home
If a mortgage is not portable, the borrower will incur penalties. A good mortgage should be portable, but not all of them are. Some lenders remove this important privilege in exchange for a slightly lower mortgage rate.
2. To take equity out
Due to the radical increase in home values, home owners take equity out of their properties to either purchase investment properties or to invest elsewhere.
3. Sale of a home
A mortgage that is assumable can allow someone to buy your home, qualify for your mortgage and take it over from you. This saves you from penalties to you in the process. This is a great privilege and should not be neglected.
4. To pay off debt
Debts paid off through the mortgage allows the debts to be amortized over a longer period and at a lower interest rate. The increased cash flow allows home owners to attack the actual debt principal instead of just being able to service the interest on their debts.
5. For a better interest rate to save money
Interest rates have reduced significantly over the last six years. Some home owners might have an interest rate that is 0.5% higher than what is available to them in the market. The savings that they can gain through the lower rate can be quite substantial. See my article about how to determine whether it is worth breaking your mortgage.
6. Marital separation
In the case of marital separation, the equity in the home has to be divided between both parties and in some cases, one spouse might want to buy the other out. The removal of one party from the mortgage and taking the equity out is done through a refinance.
7. Life circumstances change
Someone’s life circumstances could be changing due to an increase or decrease in income or expenses. This might cause their mortgage needs to change so that they would need a new and different type of mortgage.
8. Restructure their mortgage
If someone was provided the wrong mortgage in the first place, they might want to change it to a better product. This can usually be avoided if the focus is on mortgage planning and not just on the interest rate.
9. Remove a person of Title
A parent might assist their child in purchasing a home and later decide that they no longer want to be on Title. They get removed from Title through refinancing the mortgage.
10. Pay the mortgage off before the maturity date
Someone might want to pay off their mortgage before the maturity date which will incur them penalties. A good mortgage should afford the borrower the ability to pay the mortgage off in 5 years, without penalties.
Not all of these 10 reasons are avoidable. Many of them can be avoided by working with a mortgage professional who focuses on mortgage planning, not just interest rates. Your mortgage is not a commodity and should not be treated as such. A good mortgage, generated by a mortgage broker with an ethical, debt free focus can save you tens of thousands of dollars. Distinguishing between a good life or unnecessary years added to your mortgage.
Set an appointment with us so that we may review your mortgage! Your Mortgage Allies will make sure that you have the right product so you have the power to be mortgage free faster in 18 years or less.