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Breaking A Mortgage Contract: Three Things You Should Know

Breaking your mortgage contract implies that you will now stop making the mortgage payments on a regular basis as per your contract, before the maturity of the loan term or the mortgage term. Though it may be relatively easy to take up a mortgage but breaking it is much harder if you didn't ask the right questions while signing on the dotted line or if you don't know the legal details involved.

Why Would You Need to Break The Mortgage?

Breaking of a mortgage contract occurs in the event of you:

· Need to sell your home

· Require to refinance your mortgage or

· Find a lower rate of interest through a mortgage lender other than your current mortgage lender

· Pay off your debt earlier

If you are renegotiating your contract with the same lender or are going to a new lender you must review the mortgage terms thoroughly to know the pros and cons of your agreement. If the event of breaking the contract is happening just before your contract is due for renewal, you will have to bear the cost. For example, if you are getting a lower rate of interest, you need to calculate all costs involved to make sure you are actually being benefited by this action, and not just on paper.

What Costs Are Involved?

Whether you are breaking your current mortgage contract to get into a new one or you are paying off the mortgage early, you would need to bear the following costs:

· Prepayment penalty

· Administration fee

· Reinvestment fee

· Re-registration fee

· Appraisal fee

· Cash advance, if any, received while signing a current mortgage contract

How to Avoid Paying A Prepayment penalty

To avoid the financial costs of breaking a mortgage contract you must:

Know the nature of your contract: Ensure that you go through your contract in its entirety before signing it. This includes reading up the prepayment penalty clauses if any.

Port the mortgage: Most people are not aware that if they want to buy a new home they can port the mortgage after talking to the lender. This simply means you can take the mortgage to your new home, but there may be different clauses to do so from lender to lender. You would need to discuss this with your lender before taking up this option.

Assumed Mortgage: In case you are selling your house can opt for a contract in which the buyer of your property assumes your mortgage. An assumed mortgage is the taking over of an existing mortgage by the new buyer. This frees you from your house mortgage responsibility without having to break the contract. The terms, however, differ from lender to lender.

To summarise, breaking a mortgage contract, comes at certain costs and you should definitely weigh these costs and other factors involved before thinking of breaking a mortgage. Your best bet is to go to a mortgage broker who knows these clauses and costs involved and guide you through the process. We are happy to help!

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