If you have a mortgage on your home and you are contemplating a move in the next 2 years, you may want to read this, as it may save you thousands of dollars and a lot of stress.

    This article is about aligning your mortgage with your moving dates. Many people when they take out a mortgage, opt for either a 5 year "fixed" rate or "variable" rate mortgage. Regardless of the rate being fixed or variable, both these mortgages are for a minimum commitment of 5 years and any breaking of that contract prior to the 5 years being up can result in a very surprising and large cash penalty. Although most variable rate mortgages offer only 3 months penalty to break them early.

    You may have heard the saying (but not always understood), if you break your mortgage contract early, "you will pay the greater of 3 months interest or the IRD (interest rate differential)". I am here to warn you that in today's interest environment, almost all penalties are IRD penalties. I do not want to get into comparing how each lender calculates their IRD penalties, but I am here to tell you that they run a business and their calculations are designed with their interests in mind, not yours and that these penalties of late have reached such large sums as $10-25,000.

    So, what can you do to avoid these huge, sometimes crippling costs, when you are planning a move? The best advice is to plan ahead. If you are thinking about a move in the next 2 years, you should be involving in the decision, your mortgage and how will it impact the timing of your move. This is especially true for people who are either just Selling their home and not immediately buying another home (or at least not for 6 months after you sell) or those who are downsizing and will require a much lower mortgage balance on their next home, then on their current home. In both these cases you may be subject to paying a penalty to break your mortgage contract if it is prior to your renewal.

    For those of you who are selling your home and buying another, you often have the option to "Port" (take) your mortgage to the home you are Buying and possibly save on any large penalties. Certain conditions will apply. You and the home you buy would still have to meet and qualify for the lenders criteria, your current mortgage terms and conditions would still apply and if you needed to increase your mortgage (subject to qualifying) the lender could also do this by blending interest rates to avoid charging you a penalty.

    So what are some helpful suggestions to try and avoid these possible huge mortgage penalties. 1) if you are coming up for renewal of your mortgage and are planning a move in the next couple of years, you may want to think about selecting a shorter term, or elect for a variable rate mortgage (if penalty is only 3 months) or if you are happy with the rate and you know any move would involve needing a bigger mortgage into a qualifying home, it might be ok to lock in for a longer fixed rate term as long as you are sure of your next move. 2) if you are planning a move and your mortgage is not up for renewal, you should contact your lender and get a quote on the approx penalty cost if you paid out your mortgage. This is especially important, if you do not plan to buy when you sell. If the cost is huge, you may want to consider your move around your renewal date if possible to avoid the penalty. 3) If you have a current mortgage with an interest rate lower or similar to today's rates, it might be an attractive tool to help sell your home to a Buyer who would assume your mortgage and you would avoid paying a large penalty. I caution there are certain steps you want in place to protect you if someone assumes your mortgage, but it may be a way to sell and save.

    Everyone's circumstances are different and those circumstances often evolve and change. Not everyone can predict a job loss or relocation, marital challenges, death, etc. and all of these could suddenly put you in a position to move and face unexpected penalties in dealing with your mortgage. If you have any questions on this topic, or would like to discuss your individual situation, please feel free to contact me and I'd be glad to discuss it with you.

Michael J. Wilson  - Royal LePage Connect Realty