As the frenzy of activity begins with our Spring Real Estate Market so does the competition of low rate offerings in the Mortgage Market.
These low rate offerings have been widely reported in the news with it sounding like a rate war has begun. There is no rate war. Due to our current struggling economic conditions we find ourselves in a low interest rate environment and no lender is going to intentionally offer mortgage products at a loss. So what’s the catch?
These ‘no-frills’ or ‘low-frills’ mortgages are packed with many restrictive conditions and potential landmines. If you commit to one of these products without reading all of the fine print, which most often happens, you could find yourself in a situation that you may find difficult in the near future, meaning sometime in the next three years given that 6 out of 10 Canadian mortgage holders break their mortgage at about the 38 month mark.
The old adage that if it sounds too good to be true then it might be is really one you should pay attention to if you are considering one of the low rate mortgages that are being advertised recently – 2.99% and even rates as low as 2.84% are making the headlines for a 5 year fixed term.
What could be in the fine print? The mortgage is closed for the 5 year term. 100% closed. You can’t sell your house without paying a huge penalty. If you are lucky they may allow you to refinance your mortgage at posted rates but only with them. Today’s posted rate is 4.99%. You may not have any or limited prepayment options to allow you to pay extra to reduce your mortgage balance. You cannot refinance your mortgage and move it to another lender which gives you no options for negotiating a better rate. This gives you no flexibility should you want or need to refinance or sell your home.
Mortgage brokers have had these types of ‘no-frills’ mortgage products available for years and I can honestly say that I have never recommended this product to my clients – ever. Why? Once we review the terms and conditions they are far too restrictive for the average Canadian homeowner.
Why would you want to lock yourself into a ‘no-frills’ mortgage when there are mortgage products available that are fully featured with limited restrictions at rates as low as one of these ‘no-frills’ mortgages?
My advice is that before you lock in your current mortgage or consider a ‘no-frills’ mortgage if you are purchasing a home, have a conversation with a knowledgeable mortgage broker to review the pros and cons of this type of mortgage to ensure that it is a good fit for both your short-term and long-term needs. If you don’t, it could end up costing you dearly.
For more information on these ‘no-frill’ mortgages, please give me a call at 250-826-3543.