One Surprise Cost That Can Make or Break Your Sale

…Care to guess what it is?

The number one "surprise" cost that many sellers don't factor in when they're running rough numbers at home before contacting a realtor is MORTGAGE PENALTY. And unfortunately, it's the one cost that can really punch you in the gut.

When everything looks great and like you're going to have that down payment ready, you can get hit with a penalty that's tens of thousands of dollars.

Yes, like $5,000... $10,000... $20,000.

So, how can this happen and how can you prevent it?*

*Legal Note: I am not a mortgage specialist, but thank you to our awesome mortgage partner, Rob Jennings, with East Coast Mortgage Brokers for reviewing and providing your input on this post!*

A penalty occurs from selling during your term (Ex: Many people sign up for 5-year term with a fixed rate mortgage). The earlier you sell in that term, the more likely and the higher the penalty (Ex: 2 years into a 5-year term). The lenders planned on making interest from you for the full 5 years (AKA the interest rate differential). If you're selling early, they still want their money.

Things to consider to help ease or eliminate this burden:

1) While shopping for a mortgage, make sure to talk to your lenders about penalties. Generally, the "big banks" will have the larger penalties, whereas other lenders you can avail of through a broker may have far more flexible options and lower penalties. ALWAYS GET A SECOND OPINION.

2) Sell nearer the end of your term.

3) When shopping, make sure your mortgage is “portable” or “transferable” – meaning you can transfer your mortgage from one house to the next while maintaining the rate and avoiding a penalty all together.

4) If you are stuck with the penalty, not buying another home, and your mortgage is with a bank, negotiate with your lender based on your customer longevity and loyalty. Generally, this doesn’t hold much weight, but you never know if you don’t ask.

5) Know your options. Consider a variable-rate mortgage. “If your life is variable, your mortgage should be too”, says Rob Jennings. A variable-rate mortgage is broken with only a 3-month interest pre-payment penalty vs a fixed-rate interest pre-penalty is for the full remaining amount of your term. With the average person breaking their mortgage 3.5 years into a 5-year fixed, that’s 18 months of penalties for the average consumer. The variable option is “basically as good as it gets” says Jennings.

Ready to learn more? Reach out!

Nicole Darbaz, REALTOR®
Your Trusted, St. John’s Metro, Real Estate Expert 
Keller Williams Platinum Realty
709-691-1373
NicoleDarbaz@kw.com

Rob Jennings
East Coast Mortgage Brokers
709-743-4085
Rob@ecmb.ca