Selling your home can be difficult at the best of times, but for the most part if you have good information you can make good decisions. More and more we’re encountering situations where people who could sell and make a reasonalble return on their investment are having second thoughts because of the interest rate double edge sword.
We're seeing a lot more buyers coming into the market while the inventory has dimmed from its bright heights of 2007 and 2008. One reason for this is that mortgage rates are the lowest they have ever been.
Along with more buyers, the low interest rates have brought high pay out penalties for home owners with a fixed or closed mortgage. Most closed mortgages have an early payout penalty of the greater of either 3 months interest or the interest differential. For many many years it has almost always equated to 3 months interest. However with interest rates dropping so significantly that has most definitely changed.
For example, in one case the 3 month interest worked out to $4500, while the interest differential worked out to a whopping $24,000. This means if the home owner sold their home, and could not port their mortgage to a new property they would have to pay a penalty of $24,000 to their lender.
In years past there were many work arounds to chisel down the amount owed. However, many lenders like the Royal Bank and others have eradicated many of these programs. Gone are the blend and extend programs that would allow you to at lease blend your interest rate down. Gone seems to be the willingness of lenders to forgive payout penalties if a new mortgage was procured through them within 60 to 90 days.
One thing is for certain. If you are selling its a good idea to know in advance what your penalty will be.
