Mortgage interest rates have been historically low for some time. You can also take advantage of this if you already own a home and do not plan to move. You do this by transferring your mortgage. We have listed the six most frequently asked questions about the transfer.
1. Why is a fine charged if you transfer?
If you take out a mortgage with a mortgage lender, you agree on a fixed-rate period, for example, ten years. If you want to get rid of this contract earlier by transferring your mortgage, the mortgage lender will miss out on this expected interest and ask for compensation. This compensation is also known as penalty interest.
2. How is the amount of the fine determined?
The amount of the penalty interest depends on the remaining term of your fixed-rate period, the amount of your current interest, and the amount of the current interest. Often you can repay a mortgage-free percentage of the mortgage lender, for example, ten percent. This amount is deducted from the penalty interest. An additional advantage is that the penalty interest is tax-deductible.
You have a mortgage of $ 200,000. Your fixed-rate period ends in two years. You currently pay five percent interest. The current interest rate is 1.5 percent.
If you are going to transfer, you will repay your current mortgage. You may repay 10 percent or$ 20,000 fine-free. Then $ 180,000 remains.
The interest rate difference between your current interest rate (5%) and the current interest rate (1.5%) is 3.5% per year. If you transfer now, the bank will lose 7% (2 x 3.5%) interest on $180,000.
The penalty interest is, therefore (approximately) 7% of $180,000, or $12,600.
3. How can I pay the penalty interest?
Penalty interest can be a hefty sum. Not everyone has this in their savings account. Fortunately, you can also co-finance the fine in your new mortgage. The condition is that you must have equity in your home. The value of the home must, therefore, be higher than the amount of your mortgage. The higher mortgage must also be financially possible. So we look at the level of your income and any debts. Also, keep in mind that the interest on the portion of the loan used to pay the penalty is not tax-deductible.
4. Can you also transfer money to your own bank and do you also have to pay penalty interest?
Yes, you can also transfer your mortgage from your current mortgage lender. You simply pay the same penalty interest, because the bank also misses the agreed interest. However, you can sometimes save on notary fees, because going to the notary is not always necessary.
5. What costs do I have to take into account when I transfer?
- The penalty interest
- Appraisal costs
- Consultancy and mediation costs
- Possibly other costs, such as bail commission depends upon the mortgages
- The costs are also tax-deductible. That is a tax benefit of forty percent.
6. How do I know if transferring is interesting in my situation?
If you see the above costs in a row, you may not expect that transferring is beneficial for you. But in many cases, you have recouped the costs in a few years and you can enjoy lower interest rates for many years and therefore lower monthly payments.
Best Mortgage has developed a handy tool that allows you to calculate within a few minutes how much transfer costs in your situation, how much your monthly costs fall, and how many months it takes before you have recouped the costs. Keep your mortgage details at hand when filling out.