The Fine Print of a Mortgage Agreement: Do you Want a Straw or a Brick House?
Updated: May 10, 2022
It’s time for a fairy tale (but trust me, it’s applicable to real life!)
Remember the classic fairy tale of the three little pigs?
The first pig built his house out of straw,
The second pig built his house out of sticks,
And the last pig built his house out of bricks.
We all know what happened to the homes made of sticks and straw- let’s just say, it wasn’t a good outcome!
I know we’re getting a bit too old for fairy tales- but it’s crucial to get yourself into a brick house!
A brick house is one that’s purchased with a mortgage product that best suits your family’s needs and goals. When life happens and that big bad wolf comes to blow your house down- you want it standing strong.
But how do you determine what mortgage product will keep you safe and warm inside a stable brick house of your own?
Understanding the fine print of your mortgage document can mean the difference between a precarious house made of straw and sticks (confusion, uncertainty and high interest), or one made of bricks (a stable, sound investment).
Mortgage documents can be very intimidating, whether you’re a seasoned homebuyer or it’s your first-time. They are lengthy documents usually 20-30 pages in length. Yikes! They are written in complex ‘legalese’, that complicated legal jargon that can have your head spinning after just a few sentences. You’ll find yourself scratching your head (or your chinny-chin chin!) wondering what it all means!
That’s where a valuable consultation with a mortgage agent like myself comes in very handy. We’ll go through the mortgage agreement page by page and I’ll break down that jumble of words into easy to understand sections and talk through any concerns.
One portion you should pay particular attention to is the prepayment privileges outlined by the lender in the mortgage agreement. Prepayment privileges are just fancy words that define how often & when you can make extra payments on your mortgage on top of your regular payments. This is SUPER important because you can be charged a prepayment penalty that ends up costing you thousands of dollars if you aren’t following the rules outlined in your mortgage fine print.
Every lender has different prepayment privileges. Some lenders only allow a 10% prepayment per year and only ONE time per year. What if you miss that deadline? Then you’re on the hook for 12 months of more interest. Some lenders go by a regular calendar year and some by mortgage calendar year. It gets quite confusing.
My clients live in brick homes,
because I teach them about the fine print of mortgage documents.
I work with some lenders that offer up to 20% in prepayments per year. That’s a huge difference, and it means you can essentially pay off your mortgage in 5 years. Specific lenders will also allow up to 52 prepayment privileges per year. This flexibility can be life-changing.
For example, you may have a full time job where you are awarded quarterly bonuses based on the performance of the company. You could take your bonus and put it towards your mortgage. But if you’re locked into a restrictive mortgage product, you won’t be permitted and will end up paying more interest to the lender over the long term.
Don't fall into this mortgage trap, let me help you stay away from that big, bad wolf.
Learn about the fine print of a mortgage- it’s all in the details!