|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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