Finding the ideal mortgage plan might be a challenge. There's no need to keep looking; borrowers have a wide variety of mortgage choices at their disposal. There are a wide range of flexible payment plans, including prepayment, repayment, cash back, bundling, portability, and even assumability. Why hold off? Look into your mortgage choices today and select the one that best suits your needs.

 

Mortgage Options

 

Mortgages have many options available to the borrower.  

 

Options include: Prepayment (Fully Open, Partially Open, Closed), Repayment (Periodic payment increase, accelerated mortgage payment, lump sum payment, extended amortization), Cash Back, Bundled, Portability and Assumability.  

 

Prepayment Options

 

The borrower may increase their payments by prepaying their mortgage payments in advance to save on interest.  

 

Fully Open Prepayment 

 

The borrower can pay back all or part of the loan at any time without penalty or notice. This option is especially helpful for people who know they will get a large sum of money soon, such as from an inheritance or the sale of a home.

 

The main benefits are flexibility to pay off the mortgage at any time and no penalties.  Mortgages typically have a prepayment penalty that is typically either a 3-month interest penalty or an interest rate differential(IRD).  It is not uncommon for the IRD fees to exceed $10,000.  

 

The main drawback of a fully open mortgage is that the interest rate is typically higher.  

 

Partially Open Prepayment 

 

Allows the borrower to pay off the whole mortgage for a penalty of either 3 months of interest or the interest rate differential.

 

The main benefit is flexibility by allowing the borrower to pay off the mortgage or refinance.  

 

The main drawbacks are penalties of either a 3-month interest penalty or IRD, the rate may also be higher than a closed mortgage.  

 

Closed Mortgage Prepayment Option 

 

This type of prepayment option is only applicable during the sale of the property. Under all other cases, the borrower has no right to prepay the entire principal owed, while other repayment choices, such as increasing monthly payment or making lump sum payments, are usually available.

 

The main benefit is the rate is typically the lowest rate the lender has available.  

 

The main drawback is the borrower is locked in and can’t prepay or refinance.

 

Repayment Options

 

Repayment options allow for the borrower to change how the mortgage is repaid during the term of the mortgage.   

 

Periodic Payment Increase 

 

During the life of the mortgage, the borrower can use this option to raise the payment by up to 100% of the original payment amount. This is a very important thing to do if you want to pay off your mortgage faster and save money at the same time.

 

Another good thing about this option is that most lenders will let the borrower lower his or her payment to no less than the original payment amount if the higher payment becomes too much.

 

The main benefit is substantial savings over time.  

 

The main drawback is the borrower has a decrease in cash flows.

 

Accelerated Mortgage Payment 

 

An accelerated mortgage payment option is simply one that allows for a higher monthly mortgage payment. This is similar to the periodic payment increase; however, the borrower can increase his or her mortgage payment before the first payment is due, whereas the periodic payment increase must be requested after the mortgage has been advanced.

 

The main benefit is substantial savings over time.  

 

The main drawback is the borrower has a decrease in cash flows.

 

Lump Sum Payment 

 

This option allows the borrower to make a lump sum payment that is applied straight to the mortgage principle.  This can significantly increase savings over time.  

 

The main benefit is substantial savings over time.  

 

The main drawback is the borrower has a decrease in cash flows.

 

Extended Amortization 

 

When property values have risen significantly in proportion to earnings throughout time, the market has responded by introducing innovative solutions to help borrowers keep their mortgage payments manageable. The prolonged amortization is one such possibility.

 

This option extends the amortization period of the mortgage beyond 25 years. In today's market, for example, a borrower may be eligible for a 30-year amortization.  Raising the amortization reduces the mortgage payment or allows the borrower to borrow a larger amount of money.

 

The main benefit is being able to borrow a larger amount of money and reduce the amount of each payment.  

 

The main drawback is there is an additional interest paid over the life of the mortgage.

 

Cash Back Options 

 

Cash back options allow for the borrower to receive a lump sum of cash at closing (the time the mortgage is funded) that is a percentage of the total loan amount.

 

The main benefit is cash on closing.  

 

The main drawback is a higher interest rate and repayment of the Cash Back if the borrower decides to refinance. 

 

Combined or Bundled Option

 

Is an option that combines a traditional mortgage with another sort of loan, such as a line of credit.  If a borrower took out a $400,000 mortgage, he or she could have it split between a conventional mortgage and a line of credit. If the mortgage was for $399,999 and the line of credit started at $1, then each payment would increase the amount available under the line of credit as the principal on the mortgage was lowered.

 

The main benefit is flexibility by allowing the borrower access to equity at any time.

 

The main drawback is the registered debt is always the full amount against the property.  

 

Portability Option

 

The portability option, often known as porting, enables a current homeowner to effectively transfer their current mortgage to a new home.

 

There are typically three choices for the borrower:

 

Take the current loan in its entirety, as long as the loan-to-value ratio of the original mortgage is not exceeded.

 

Take out a new loan in an amount that does not exceed the original loan to value.

 

Increase the amount of the present loan to the new property by having the lender combine the existing rate on a new mortgage with the borrower's current rate.

 

The main benefit is rate protection by allowing the borrower to save money by keeping the lower contracted rate and moving it to the new home, if rates have increased.

 

The main drawback is limited application.  This option is great when the current market interest rate is higher than the borrower's contracted rate, but it isn't as useful when interest rates are consistently low.  

 

Assumable Option

 

With an assumable option, a buyer can take over the debt of the current owner of the property being bought. For the current borrower to be freed from their agreement with the lender, the buyer must be approved by the lender and sign an assumption agreement.

 

The main benefit is rate protection.  If the market interest rate is higher than the rate on the existing mortgage that can be taken over, it may be better for the buyer to take over the existing mortgage.

 

The main drawback is limited application.  This option can also be very helpful when the current market interest rate is higher than the borrower's contracted rate. However, when rates are consistently low, this option isn't as useful.