Breaking your mortgage sounds like an alarming proposition, and it can be! Depending on the terms of your loan, it can cost you penalty fees to break your mortgage, so most borrowers want to avoid it, if at all possible.
That said, statistics show that up to 60% of borrowers break their mortgage before the term is up. That is a large percentage! This article examines some of the reasons why people break their mortgages, and how to avoid those scenarios, and/or minimize the potential costs if breaking your mortgage is unavoidable.
Reason # 1: Change in cohabitation status. Whether it’s a marriage or divorce, any change in relationship status can affect your mortgage. For example, if you get married and both parties have mortgaged homes, one partner may need to break their mortgage in order to sell their home. Conversely, a divorce might mean that you need to sell the formerly marital home. If the house is currently mortgaged, selling it would mean breaking that mortgage.
Reason # 2: Refinancing at a lower rate. If you have the opportunity to refinance at a drastically lower interest rate, it might be worth incurring the financial penalties of breaking your mortgage. This situation, like all considerations regarding your mortgage, is best discussed with an experienced mortgage broken who can help you evaluate all the factors in whether or not such a decision would be worth it.
Reason #3: Change in financial status. Receiving a large windfall of cash such as an inheritance or salary bonus might enable you to pay off your mortgage before the maturity date. While completely paying off your mortgage is an attractive prospect, it often means incurring fees for breaking your mortgage. The same is true for the opposite scenario: If illness or loss of income means you can no longer afford your mortgage and you are forced to sell or take out equity in your home to pay off debt, this may also be considered breaking your mortgage, and fees could be incurred.
Reason #4: Removing someone from the title. If you have bought a house for your child and you want to fully transfer it to their name, you might need to break your mortgage. However, this is one of the situations where the fees can be avoided. It is possible to arrange a mortgage where removing one or more people from the title will not be considered breaking the mortgage and therefore not incur fees. If you are buying a home and you anticipate eventually removing someone from the title, you can avoid the fees by consulting a mortgage broker to help you to select an appropriate mortgage.
Reason #5: Sale and purchase of a home. If you have to move before your mortgage term is up, you might need to break your mortgage. If you anticipate relocating before your mortgage term is complete, a “portable” mortgage can be very useful. Note: you will need to requalify for the “ported” mortgage based on your income and your new home, but you won’t incur fees for breaking the mortgage. A mortgage broker can help you decide whether a portable mortgage is something you want to consider for your home purchase.
As with all things in life, there are some events that cannot be anticipated when purchasing a home that will unfortunately affect your finances. Nevertheless, educating yourself and consulting with an expert can help you to anticipate which events might eventually impact your mortgage, so that you are prepared when it is time for change. And even for events that you don’t expect, like a divorce or illness, a mortgage broker can help you to mitigate the impact. No matter what your circumstances, consulting an experienced and passionate mortgage broker is the best way to get a customized mortgage solution, so you can start enjoying your property sooner!