What is the very first question you ask when shopping for a mortgage?
"What is your lowest rate?"
You know when you see something that's too good to be true? It usually is. What if I were to tell you that it's not necessarily just about the interest rate when it comes to your mortgage? For those of you I have spoken with over the phone or by email, you know what I am talking about! I am a huge advocate of making comparisons and outlining some of the possible implications with shopping for a mortgage strictly on the basis of interest rates.
Don't get me wrong, every morning I look to see what the interest rates are doing and what the short term bond rates are up to. The difference here is that I read the fine print next to the rate. This is a very important lesson as I am sure we have all been burned once or twice in the past when it relates to fine print.
Here are some helpful tips to consider when shopping for your mortgage and specifically if you are strictly trying to obtain the lowest possible rate ever:
- Traditionally many of the extremely discounted rates are for insured files which are for borrowers with a down payment less than 20%
- Many of these rate specials require the property to be owner occupied only and can only be obtained if the closing date is set for a maximum of 30 - 45 days
- Most of these mortgages have very limited prepayment options and little to no flexibility
- The borrower must have excellent credit
- Lenders typically charge higher administration fees, title insurance and legal fees for these products
- Penalty calculations and fees associated to discharge or make changes to these mortgages are expensive
- The mortgage may be registered as a collateral loan which will make it costly for you to change lenders during your term or at mortgage renewal
- Read the fine print as the fees attached to these products alone usually supersede the interest rate savings!!!
These are just a few of the ramifications with strictly rate shopping; it pays to be informed and to know all of the facts. The savings by taking a slightly higher interest rate could add less than $10.00 per month to your payment but could potentially save you thousands more in interest charges than a rate that's slightly lower based on flexibility.
When I mention flexibility, these are items such as prepayment options. Many lenders allow you to increase your mortgage payment by up to 15 or 20% per year without accruing a penalty. You may also provide a lump sum payment of 15 - 20% per year without a penalty. A few lenders allow you to renew your mortgage early without accruing any type of penalty and blend/extend your current mortgage interest rate into an entirely new term without a penalty. Your mortgage may also be portable and assumable. These are all options that should be discussed with a professional as we are able to explain them in detail and inform you about the risks and costs should any of these items not be included with your mortgage.
Make sure you ask some questions and consult with a Mortgage Professional as we will be able to make the appropriate comparisons for you and source out a product that is the perfect fit. Our advice can save you thousands of dollars and minimize the stress involved with making such an important decision.
I look forward to hearing from you!
As always, I encourage you to contact me if you have any questions with your current mortgage or are looking for one. Please find me on facebook at facebook.com/jnmortgages and on twitter @jasonmortgages.
Jason Nesseth with TMG The Mortgage Group Canada Inc. If you have any questions or comments about this blog, please feel free to call Jason at 604.375.7375, email jason.n@mortgagegroup.com or visit his website at jasonnesseth.com