Mortgage Help

Quick Overview

Possible Danger Zone

On the following pages we will look at mortgage help for the for sale by owner including payout penalties, assumptions, portability, seller financing, bridge financing, blended mortgages, and mortgage brokers.

The first thing we will cover in our help with mortgage, is the possible payout penalty you could be facing if you don't do your homework first.

Don't panic. We'll go through everything together step by step.

The Payout Penalty

If you have an open/variable interest rate mortgage that is not locked into a fixed term, you can skip this section of mortgage help.

If your mortgage rate is locked into a fixed term, ie: 3, 5, 7 year term, you better read this section.

The first thing you should do and preferably before you even place your house for sale on the market, is check out your mortgage document.

Somewhere in the fine print you will find the terms of your mortgage concerning an early payout.

The most common terms will be a penalty of either:

* 3 months interest.

or

* The interest differential.

Whichever is GREATER

This is the only type of terms we will cover on this website.

What Does that Mean to Me?

Well my dear reader, that is what we are about to look at on this mortgage help page.

It can mean a huge shock on your bottom line should you not take some steps ahead of time, before you accept an offer.

- Note: The following examples are the most common pay out penalties. Where you live may be different. Checking with your mortgage lender, is the only way to find out for sure.

Let's look at a couple of examples:

You took out a mortgage of $250,000 for a 5 year term @ 4.5% interest.

You are making monthly payments and your amortization is 25 years.

You have 3 years remaining on the mortgage term.

A new mortgage for the same 5 year term is now @ 6.5% interest.

Your penalty in this case under the 3 months interest or interest differential, should be the 3 month interest penalty, but please check to make sure.

This penalty should be approximately $2,654.00.

The Second Example

You took out a mortgage of $250,000 for a 5 year term @ 6.5% interest.

You are making monthly payments and your amortization is 25 years.

You have 3 years remaining on the mortgage term.

A new mortgage for the same 5 year term is now @ 4.5% interest.

Your penalty in this case under the 3 months interest or interest differential, should be the interest differential.

This penalty should be approximately $12,846.00!

Now that I have your attention, you can see why this might be important.

If you want to get an approximate look at your penalty, just click From Mortgage Help to Mortgage Payout Penalty Calculator

Why Do they Do This?

The bank has investors that invest their money into mortgage funds, expecting a certain rate of return on that money.

The bank also borrows money to place with mortgages from world banks etc.

The mortgage lender based that rate of return to the investors, from your 6.5% interest that you are paying.

You now breached that contract by paying out the mortgage 3 years early.

The mortgage lender is now out that $12,846.00 in interest. They still have to pay their investors the agreed upon rate of interest of the mortgage fund.

Sorry, you are the person that has to make up the shortfall.

This of course is a very simplified explanation, but I believe it gets the point across right?

What Can You Do About This?

I'm glad you ask. Here is a step by step suggestion in the order you might want to take to get some mortgage help.

Step 1. - Call your mortgage company and ask for some mortgage help.

Step 2. - Ask what your payout penalty is if you pay out early.

Step 3. - Ask if your mortgage is portable. (this should be written on your mortgage documents as well).

Step 4. - Ask if your mortgage is assumable and if so, how long you are liable, should the buyer default on the mortgage. (this information should also be on your mortgage papers.)

Step 5. - Ask what your penalty would be, if you place a new mortgage with the same mortgage lender.

Step 6. - Ask what your penalty would be, if you and your buyer both, place new mortgages with your mortgage lender.

Step 7. - Write all the answers given down to review later.

Step 8. - Go over all the figures so you can make a decision most beneficial to you.

What Should I Do?

Lets look at some mortgage help plans of action.

If interest rates have gone up since you took out your mortgage, you should be in relatively good shape. Based on the 1st example above, you should be out a maximum of approximately $2,654.00.

This is still probably money you would rather have in your pocket, so you try to make a deal.

* If your mortgage is portable, take your old mortgage with you and put on the next house you are purchasing.

I don't want to get to complicated here, but if the new mortgage is larger, you will have to find out if you can blend the 2 mortgages.

* If your mortgage is assumable, you might consider having the buyer assume your mortgage. This needs further explanation on several fronts, so will handle that on a separate mortgage help page.

* Try to get a reduction or even a total forgiveness of the penalty, by promising to stay with the same mortgage lender for your new mortgage.

* Try to eliminate the penalty totally, by having your mortgage and the buyers mortgage, placed with your present mortgage lender.

- Note: One way to receive some mortgage help, is to put right in your purchase and sales agreement, that the buyer has to finance their mortgage with your mortgage lender.

Of course the buyer has to agree.

The Tougher Plan

If your situation is the 2nd example, things get a bit more complicated.

Here are a few mortgage help thoughts you might want to consider.

* Take your house off the market until you are either closer, or finished with your present mortgage term.

* Wait to see if mortgage rates go up, whereas the interest differential is lower, or you are only facing the 3 months interest penalty.

* If you have to sell, try some of the bargaining steps outlined in the 1st example above.

- Note: You probably won't be able to get the buyer to assume the mortgage. The reason of course is that your mortgage is at 6.5% to assume and the buyer can get a new 5 year term mortgage at 4.5%

You will probably not get out clean altogether, but you can still try to bargain for a lesser penalty. The main purpose of this mortgage help page, is to alert you to the possibility of a large payout penalty should you not check your obligations before you sell.

As I stated in the beginning, this is not a problem if you have a open/variable interest rate mortgage. The rate floats month to month so there is no cost to the mortgage lender, should you pay out early.

An open mortgage can normally be locked into a fixed rate term mortgage, or paid out at any time.

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