The number 1 question customers ask when shopping for a mortgage is and likely always will be “what is the lowest rate I can get?”. While obviously an important aspect of your mortgage, getting the lowest rate isn’t always the be all and end all and we are going to give you some examples of that.
One of the most glaring examples of why you need to look past the allure of the low interest rate is the penalty. Countless times we have had customers come in to refinance or sell their home only to have the efforts crushed by an astronomical penalty associated with breaking their mortgage. When the clients are appalled as to why their penalty is so high above the norm, the answer is often simple; at the time when they were given their mortgage, they were coaxed into signing with a sexy low interest rate, much lower than everything else on the market. What they weren’t told or chose to ignore was that this “special” offer was what is referred to as a “no frills” mortgage. Meaning, that in exchange for a super-discounted rate, the lender does not offer any pre-payment privileges or flexibility and when it comes time to break the mortgage, the penalty is through the proverbial roof!
When shopping for your mortgage, you need to weigh out all of your future plans, goals and of course leave some wiggle room for the unplanned events that life invariably brings our way. If you are planning to sell or renovate in a couple of years, this should be accounted for. Even if you aren’t, to save 10 bps (0.10%) on your mortgage may not be worth the “no frills” trade off. Make sure you have your bank or broker explain these things to you. A good broker will always go over these things with you anyways.
Another item you may want to consider are costs associated with the mortgage closing as well as services throughout the term. One lender may be offering 2.49% instead of 2.59%, however they require you to pay more upfront on closing and those costs may outweigh any interest savings over your term. Some lenders may not offer online access which may be an important item for you.
The bottom line is you need to look at your mortgage as a whole when choosing the right product for you. It isn’t always about going with the lowest rate or the biggest brand name bank. Have your broker explain your options to you and discuss in detail what your future plans and goals are. Their job is to find you the best possible product for your wants and needs and to ensure you get the best mortgage available to you, and that certainly is not defined solely by rate.
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