Mortgage clients always ask the same question, “I need the best mortgage rate, what rate do you offer?”
While the client is always right, and I always provide the best rate and terms, I always tell them the importance of looking at the fine print when selecting a mortgage. There are lots of mortgages out there offering lower rates, but are they necessarily less expensive?
Here are some interesting facts to consider:
• 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 in Canada make it to renewal
This means that the majority of people in Canada are paying a penalty of some sort on their mortgage for breaking or changing their mortgage prior to renewal. You may think that these penalties are likely small, so it wouldn’t really matter. However, these penalties are often in the $5,000 to $10,000 range or higher.
In most cases the solution is simple. With some planning many of these penalties can be avoided or reduced substantially. This is why working with a mortgage professional is helpful. By having someone there to ask the right questions and know the different products available, they can save you thousands of dollars.
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, so don’t put it off – speak to a mortgage professional and create a short term and long term plan.
If you’re not completely convinced and still want the best rate, let’s take a look at the numbers and then decide.
Different lenders can 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 may seem like a lot of money, but when you consider penalties can vary by 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 example next time you’re mortgage shopping, and remember you can always speak to me for a second opinion before committing.