Looking for the absolute rock bottom lowest mortgage interest rate? Gone are the days when consumers are just looking for the lowest mortgage rate. OK, let’s face it – some still do but many who are searching for mortgages are more educated and understand that strings are attached to that lowest rate. Most often, lowest rate equals highest restrictions including a large penalty of up to 3% of the outstanding balance to break the mortgage and less features such as low to no prepayment options. There is still a way to get a very low rate while not stepping on some land mines during the term of your mortgage,
Time and time again I speak to clients who were totally unaware of the type of mortgage they were placed in or it’s features and fine print. A Mortgage Broker will help you decide what is best for you taking into consideration your risk tolerance, goals (short term and long term), lifestyle and overall debt profile. Trying to decipher hundreds of mortgages can be daunting but you don’t have to do take this on, this is what your Mortgage Broker is there for. In the meantime, here are a few tips on what to ask for before you take on your next mortgage:
- On a fixed rate mortgage what is the penalty to break before maturity? Standard is Interest Rate Differential or 3 months interest – whichever is greater. What rate is being used to calculate the penalty? Banks are notorious for charging the highest penalties based on their posted rates. For lenders that don’t use posted rates you can be sure to have a substantially lower penalty than the banks.
- On a variable rate mortgage what is the penalty to break before maturity? Standard is 3 months interest only.
- Is this a collateral or standard charge (aka conventional) mortgage? This is super important especially if you want the option of transferring your mortgage to another lender at maturity for a more competitive rate at the end of your term (who wouldn’t want that?).
- What are the prepayment options and how often can I make them? Lump sum, increase in payments, frequency for these as well (calendar year, anniversary).
- Are there any charges for making changes mid term such as payment frequency, prepayment, change in payment account, etc.?
- How is interest compounded and calculated? This could change what you actually think your interest costs will be and increase your true effective mortgage rate.
- Is the mortage portable?
- Is the mortgage assumable?
- If a lender is giving an incentive such as 2% of the mortgage amount at closing – what are the restrictions on this benefit? Most have a clause that demands you pay back a retroactive amount if the mortgage is broken prior to maturity – not such a great deal after all and the rates are usually much higher so in the end you are paying for that incentive. Consumers are under the impression that this is “free money” – another mortgage myth.
Some of these may or may not have a high importance to your individual situation, this is why we customize a mortgage for each and every client. Keep in mind that comparing rate to rate is most times comparing apples to oranges, make sure to understand the options, features, restrictions and fine print before committing to a mortgage.
Call us today for the best mortgage solution for you!
Kim Gibbons, Mortgage Superhero ®
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Your Toronto Mortgage Broker