Three Month Interest Penalties.....
 

All mortgages used to carry a three month interest penalty on
 

prepayment. Once the concept was widely accepted by Consumers, in
 

May, 1988, the last lending institution changed the rules quietly
 

to the greater of: interest differential, or the three month
 

interest penalty. The difference in monetary value depends on the
 

loan amount and the interest rate at the onset of the mortgage. If
 

you had a mortgage of $100,000 at 11.5% with 3 years left, the
 

three month interest penalty would amount to $2875. The interest
 

differential, however, would be $6750.....NICE SURPRISE!
 
 

Weekly/Bi-Weekly Payments....
 
 

Most lenders offer payments with greater frequency than the old
 

monthly plan. The majority of these lenders drummed into the
 

Consumers' mind that the concept of weekly/bi-weekly payments would
 

fully amortize a 25 year mortgage in 17 years. Most Consumers now
 

are convinced that this is good for them. Quietly some lenders
 

changed the definition of weekly payment to mean a 33 year
 

amortization that will be paid in 25 years, if paid weekly. When
 

challenged, they re-named the old plan "accelerated weekly". Since
 

the amortization period is not mentioned when registering the
 

mortgage on title, the Consumer had no way of knowing that the plan
 

had changed for the worse. If any of you are interested in knowing
 

the how to differentiate the two types, simply ask the lender to
 

quote the monthly payment for the chosen amortization period, take
 

that figure and divide by 4 for accelerated weekly, or divide by 2
 

for accelerated bi-weekly.
 
 

Convertible Mortgages.....
 
 

The newest trend for Consumers is to assign their maturing
 

mortgage to another lender to avoid paying the costs associated
 

with a brand new mortgage. How the system works is kind of neat.
 

The Consumer elects to offer the old mortgage with ABC Trust to a
 

new lender. Since the mortgage was good enough at the beginning
 

with ABC Trust, it should be good enough now for XYZ Bank. As in
 

a renewal of a mortgage, there is no need to fear that a subsequent
 

debt will upset the validity of the rank of the mortgage. The new
 

lender, XYZ Bank simply registers a amending agreement on title to
 

do with the name change, and possibly the interest rate. What this
 

meant for the Consumer was a cheap way of getting a mortgage from
 

a new Lender. The Lending industry, finding itself vulnerable to
 

losing market share had to come up with a system to protect itself.

Knowing that Consumers were looking to hedge their bet against
 

rates going up, and yet wanting to enjoy short term interest rates,
 

along comes the "convertible" mortgage. Under the guise of a short
 

term mortgage, and the flexibility to lock into longer term rates
 

without a penalty, Consumers were apparently the winners.
 

Little did the borrower know that in most cases, they were not
 

signing for a six month or one year mortgage (the option period),
 

but truly they were signing for a 66 month or 72 month mortgage.
 

If at the end of the conversion period, they (the Consumer) wanted
 

to take their business elsewhere, it would cost them at least the
 

three month interest penalty.