Low-rate mortgages

As the frenzy of activity continues with our real estate market despite COVID-19, so does the competition of low rate offerings in the mortgage market.

These low-rate offerings and some even with cash-back offers, 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 land mines.

If you commit to one of these products without reading all the fine print, which most often happens, you could find yourself in a situation that you may find difficult in the near future. That near future in the next three years given that six out of 10 Canadian mortgage holders break their mortgage 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 being advertised recently – 1.99% and even rates as low as 1.76% are making the headlines for a five-year fixed term.

What could be in the fine print? The mortgage is closed for the five-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 4.79%. 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?

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 it is a good fit for 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. Let’s make sure you are comparing apples to apples and the mortgage product you are considering is a good fit.

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About the Author

April Dunn is the owner and a Mortgage Broker with The Red Door Mortgage Group – Mortgage Architects. She has been assisting clients to purchase, refinance or renew their mortgages for over 20 years.

April has experience as a Credit Union manager, a Residential Mortgage Manager with a large financial institution and as a licensed Mortgage Broker. By specializing in Strategic Mortgage Planning she has the tools available to build a customized mortgage plan, with the features and options that meet your needs.

April provides a full range of residential and commercial mortgage financing options for clients all over the province of British Columbia and across Canada through the Mortgage Architects network.

Contact e-mail address: [email protected] or by phone at: 888-561-2679.

Website:  www.reddoormortgage.com

The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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