Is rate the most important?

is-rate-the-most-important

Sep 09 2016

Mortgage clients constantly tell me

“I need the best mortgage rate, what rate do you offer?” 

While the client is always right, and we always provide the best rate and terms, we do convey the need to look at the fine print when selecting a mortgage.

Often there are mortgages out there offering lower rates, but are they necessarily less expensive?

First some facts:

  • The average mortgage in Canada lasts for just over 3 years
  • Over 75% of mortgages in Canada are locked in for 5 years or longer
  • Less than 50% of mortgages make it to renewal

What this means is the majority of people are paying a penalty of some kind on their mortgage for breaking or changing their mortgage prior to renewal.  You may think that these penalties are small, so it doesn’t really matter?  Well often these penalties are in the $5,000 to $10,000 range and higher.

The solution is simple in most cases, with some planning; many of these penalties can be avoided or at least reduced substantially.  This is where the mortgage professional comes in; by asking the right questions and knowing the different products available a mortgage professional can save you literally thousands of dollars.

The planning is always most beneficial when done up front rather than when you are negotiating a change or payout of your mortgage.  The lender has you at that point and is usually less likely to make concessions.  That being said better late than never, don’t put it off speak to your mortgage professional and create a short and long term plan.

You’re not completely convinced and still I want the best rate?  Let’s take a look at the numbers and then decide…

Often different lenders vary in rates by as much as a .25%.  This equates to a difference in your monthly payment of $36.37 or $2,182.20 over 5 years based on the typical 5-year $250,000 mortgage amortized over 25 years.  This seems like a lot of money, but when you consider penalties can vary by easily 3 or 4 times this amount, and that at least 50% of mortgages don’t make it to renewal, all of a sudden the rate is not as important as the fine print.

Think about this next time you’re mortgage shopping and make sure you speak to a mortgage professional before committing

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