Calgary Real Estate Mortgage 10 Year Term

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Calgary Real Estate Mortgage 10 Year Term

I am very interested in the 10 year term, but I have concerns…

Q. What is the penalty on a 10 year term?

A. According to the Interest Act, once 5 years has passed in the term, the maximum penalty is 3 months interest.  For the first 5 years, the penalty is the greater of the interest rate differential and 3 months interest.

Q. I heard a statistic that 80% of mortgages refinance within the first 3 years.  My client could get stuck paying a hefty interest rate differential.

A. All of ING DIRECT’s mortgages are transferable.  If the client moves, he can transfer his mortgage to the new property and take a blended rate to avoid paying a penalty.

Q. But what if the client does not buy a new property?

A. In this case, the client will have to pay a penalty – the greater of the interest rate differential and 3 months interest.  But consider the following: at ING DIRECT, we will calculate the penalty on the balance minus the unused portion of the 25% of initial capital (pre-payment privilege).  AND ING DIRECT only has one rate, therefore our penalty will be calculated using the rate of 3.99% and not a much higher ‘posted’ rate like some banks who are at 6.75% posted for 10 years!

Q. I get the impression that there is a lot of risk involved in a 10 year product.

A. Rates are at historic lows.  Economists are telling us that the rates could start to increase as early as the end of 2012.  There is a strong possibility that in 3 years the 7 and 10 year rates will be higher than 3.99%.  For ING DIRECT, our interest rate differential calculation would be negative leaving only a 3 month interest penalty for the client.  Coupled with our transferability options, the risks for the client are low.

Q. What are the advantages of a 10 year term.

A. The advantages are a rate of less than 4% for 10 years!  Two years ago the 5 year rate was at 5.25%… we have no idea where rates are going.  With all that is happening in the global economy, mortgage stability offers a great financial security.



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