Lowest rate not always best

I take calls on a regular basis that start with the question “What’s your best rate?”

My answer is never a quick one.

  • Not all mortgage lenders are created equal.
  • Not all mortgages are created equal.
  • The lowest rate available may not be the best rate for your particular situation.

In the mortgage space, lenders have subtle differences in their policies and products. Many offer a standard mortgage as well as a no-frills version. The no-frills option is generally price .05% lower than the standard product.

Based on a $500,000 mortgage, comparing 1.69% and 1.64%, the difference in interest cost over five years is about $1,160.

The no-frills mortgages come with the slightly lower rate and restrictions about how and when you can pre-pay the mortgage.

In the excitement of buying your home you might be certain that you will be in your new home for life. Or for five years at minimum.

Trading a standard mortgage penalty calculation for the no-fills option may come back to bite you later.

I’m working with a young couple that signed a no-frills mortgage three years ago with another broker. He was offered an amazing position in a different city, one that he couldn’t turn down.

They were shocked to learn that their mortgage is not portable to a different home, and are looking at a massive penalty to break their mortgage early.

They aren’t in the position to carry this home as a rental, so unfortunately are losing almost $20,000 on the sale of their home.

I’ve been working with another client for the last year that is in a situation where the value of the condo he bought has dropped, and he will have to come up with cash to pay out his mortgage if he wants to sell.

He has had it rented for the last 18 months because his employer transferred him to a different city.

Sometimes lender policies guide how I choose which lender to place my clients with. A common challenge right now is clients who own multiple rental properties.

Lenders calculate the rental expenses slightly differently. From time to time a lender with better rental calculation may have a slightly higher interest rate.

This may not be the best rate available, but it may be best rate for you if your numbers work based on their policies.

When I am answering the rate question, I try to get a good sense of my clients’ future plans.

Historically variable rate mortgages have outperformed fixed rate mortgages. At this point, we are in a situations where the variable rate mortgages are at a higher rate than the fixed rates that are available.

Taking the lower fixed rate might be tempting, but going with a variable mortgage may make more sense if you are looking at moving or even paying the mortgage out early.

Finding the best rate means finding the best rate for you. Take the time to make sure you understand the fine print – it can make a world of difference in the long run.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.


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About the Author

Tracy Head and Laurie Baird help busy families find mortgage solutions. Together they have more than 45 years of experience in the mortgage industry.

With today’s increasingly complicated mortgage rules, Tracy and Laurie spend time getting to know the people they work with and help them to better understand the mortgage process. They support their clients before, during, and after their mortgage is in place.

Tracy and Laurie work closely with their clients, offering advice and options. With access to more than 40 different lenders, Tracy and Laurie are able to assist with residential, commercial, and reverse mortgages in order to match the needs of their clients with the right mortgage package.

They work closely with their clients to find the right fit, and are around to provide support for years down the road!

Contact them at 250-862-1806 or visit www.okanaganmortgages.com

Visit their blog at www.okanaganmortgages.com/blog


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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