Solution: the terms can make or break you!

Prepayment privileges:

• Ask about prepayment privileges -some mortgages allow you to prepay up to 20 % per year without penalty! For example on a $100,000 mortgage at 7.5% and at a 25 year amortization -all very typical -if the homeowner prepaid $1000.00 each year on the anniversary day of the mortgage, the result would be that the amortization drops from 25 years to 19.32 years -saving $31,118 in interest! There are some solid reasons for doing this -your mortgage interest is generally non-tax deductible, so your real rate of return on money you use to pay down your mortgage may be very high depending on your tax rate.
• Whether you should prepay or pay down your mortgage faster is the subject of many debates -it pays to address the issue with the lender.

Penalties:

• Be sure you understand the rules on penalties for your deal. Ask the lender how they will handle issues such as a sale of the property during the mortgage term. What sort of penalty (if any) will they charge? What fees are there to discharge or renew the mortgage? Are you allowed to renovate without their permission?
• Remember -a shorter-term mortgage has a lessened penalty risk than a long one.

Final thought:
More information can be obtained (free) from the Canadian Bankers Association -get their "Mortgage Wise" guide - PO BOX 1500 Station A Toronto Ontario M5W 2N8.

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