Posted onMay 02/2016
With some vendors, there can be ‘hidden’ costs in mortgages. These include fees that you’ll pay when you discharge your mortgage, and if you break your mortgage contract early. Make sure you consider these fees when negotiating your mortgage.
A mortgage discharge fee is just what it sounds to be: A fee you pay for the mortgage discharge, which is a legal document releasing the collateral hold on your home. With the Discharge of Mortgage document, you are legally released from all mortgage obligations.
You can obtain this document once your mortgage is paid in full. Your mortgage company will supply you with a letter confirming your mortgage is paid in full.
The process of obtaining your mortgage discharge varies from province to province. In Ontario, the completed Discharge of Mortgage document must be witnessed by a notary. A representative from your mortgage company must complete the discharge form. You will have to pay the mortgage company a discharge fee. The fee is set by your lender.
You must have your Discharge of Mortgage recorded at your local Registry of Deeds. There may be an additional fee for this.
If you break your mortgage contract early, for instance by paying off your mortgage early or selling your home, you could be faced with a fee. You may also be charged a fee if you change lenders when your mortgage term matures. This fee is to compensate your lender for the revenue it will lose if you break your mortgage contract with them.
Make sure you know what any discharge penalties are before agreeing to switch lenders.
The amount of your mortgage penalty will depend on the type of mortgage you have. Variable rate mortgages have a fee of 3 months interest. Fixed rate mortgages have higher fees: either 3 months interest or the interest rate differential, whichever is higher.
Tips to avoid mortgage penalty charges
Make sure the mortgage you choose gives you the option of making prepayments or anniversary payments. Many mortgages allow borrowers to pay up to 20% of their mortgage, but only once per year. If you inherit money, for example, you should consider this option. These prepayments are applied to your principal, and therefore reduce your interest costs.
If you plan to refinance your mortgage soon, you should utilize your prepayment options. If your principal is reduced, your penalty will be lower.
Mortgage discharges in refinancing and bankruptcy
A mortgage discharge removes all obligations to making payments on the loan acquired for your property. Although this typically occurs when you have completed all of the payments required, a mortgage discharge must also be applied in cases that involve bankruptcy or refinancing.
Mortgage discharges allow for the transfer of ownership to the borrower. Your lender cancels the payment note and releases the lien on your property.
As the new owner, you’ll be mailed the deed by the lender once the mortgage discharge has been completed.
In cases where homeowners have refinanced their homes, the mortgage is paid off using funds from the new loan. This requires a mortgage discharge to release the property lien and cancel the note.
When this has been completed, your new lender will process the refinanced mortgage and secure the new loan with a new lien on your property.
For property owners who file for bankruptcy, a mortgage discharge releases you from the obligation to making payments on your loan. But ownership is not transferred to you once the bankruptcy has been settled.
Bankruptcy settlements allow the courts to issue a mortgage discharge in order to forfeit the property to the original lender. Although this eliminates your responsibility, you surrender ownership of the property to settle all previous money owed.
You’ll still have to process a foreclosure in order to be removed from the property title.
Despite the surrender of the property, the lender still needs to complete the foreclosure process to remove the borrower’s name from the title.
Collateral mortgage and discharge fees
You should also be aware of the details related to a mortgage discharge when you have a collateral mortgage. If you decide to move your mortgage, the transfer fees are typically covered by the new lender.
However, a collateral mortgage may require the services of an attorney along with fees that can be as high as $1,000. This can affect your mortgage discharge when paying off your loan as well as limiting the borrowing of any additional money.
Conventional mortgages consist of a lender’s registering an equal amount of money as the amount borrowed in order to place a liability on the property. On the other hand, collateral mortgages result in a higher amount being registered by the lender.
Mortgage discharges are a necessary step in paying off your loan. But they can lead to additional fees.
Understanding how mortgage discharges work along with the details related to property refinancing, bankruptcy, and conventional and collateral mortgages will ensure that you don’t pay more in fees than you have to.