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Things to consider when choosing a mortgage

When you buy a home, you might want to consider choosing a mortgage that includes flexible prepayment privileges. Prepayment privileges allow you to increase your regular mortgage payments without having to pay extra fees.

Prepayment privileges are sometimes included in the agreements for closed mortgages. If your lender is a federally regulated financial institution, such as a bank, it must indicate the prepayment privileges in an information box at the top of your mortgage agreement.

If you increase your regular mortgage payments, even just a bit, this will have a significant impact on the long-term cost of your mortgage, and how long you have to pay. To see how much you can save, in money and in years, try using the Financial Consumer Agency of Canada’s Mortgage Calculator.

Prepayment penalties

Some lenders may charge extra fees if, for example, you make more payments than the number allowed, if you break your mortgage agreement or if you transfer it to another lender before the agreement ends. These penalties can cost you thousands of dollars. You can avoid them by respecting the terms of your agreement.

Before signing the agreement, confirm with your lender if your mortgage includes prepayment privileges, and ask about the following:

  • What is the maximum amount that you can pay, in addition to your regular payments, every year without a penalty? What is the frequency of these payments?
  • What is the amount of the penalty if you violate the conditions for prepayment privileges?
  • Can you stop making prepayments at any time and without a penalty if you are no longer able to make them?
  • When shopping for a mortgage, compare the advantages offered by potential lenders. Ask questions about anything you don’t understand. It could save you thousands of dollars.

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