Methods To Avoid Paying A Penalty When Changing Mortgages
So you want to change mortgage companies, however you don’t want to get hit with that large penalty that your previous bank is going to charge you to cancel? You want to avoid paying a penalty. Not a problem. There is another solution.
A couple of weeks ago I was looking at switching my mortgage. I wanted this since I wanted to take advantage of lower rates somewhere else, as well as access the equity in my house, and other products were more flexible at doing this than my current bank’s mortgage.
I spoke with a friend of mine this month who wanted to do the same maneuver (not Smith Maneuver), but was faced with the same issue I was faced with: a STEEP fee for switching during the mortgage term. We are looking at thousands. Ouch. We need to switch mortgage for free.
Alas, we set out to learn how to avoid the fee when switching mortgages in the middle of a term.
I thusly told the people I was dealing with at the new mortgage company that it wasn’t worth it to pay nearly $6,000 to switch mortgages. It was just better to wait until the term was up for renewal.
It was only then that they told me that the Home Equity Line of Credit could easily be set up in a second position. I didn’t think the new mortgage company could do that, but they do. Thus, I could take advantage of the flexibility and lower rates, but avoid the cancellation fee for the first mortgage. Awesome!
Then as I was speaking with my friend that I realized that I wasn’t the only one with this issue, so I thought I would help you also.
Next that you can start doing once the second mortgage is aligned, is just write a check from one mortgage to the other mortgage. Most first mortgages allow you to pre-pay a certain amount or per cent each year. Effectively, you just start transferring one mortgage to the other in pieces. In effect, this gets around the fee.
The kicker is though that there may be a minimum amount for setting up the new mortgage at the second company. When I finally set it up, the limit was $50,000. Now I understand that they have raised it to $75,000. I’m not certain what your Bank’s minimum is, but it would be worth giving them a call to find out.
Lastly, make sure you collect rewards when you pick which company you want to go with.
There is no need to pay a mortgage penalty. Simply get creative and you will avoid penalties.
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