According to CMHC’s 2021 Mortgage Consumer Survey, 85% of respondents feel that a mortgage broker would get them the best mortgage rate or deal. All too many of those people associate the “best” rate with the “lowest” rate. While rock-bottom “no-frills” mortgage rates may look great in an advertisement—and can indeed save you a significant amount of interest if you don’t renegotiate early—it’s the loss of flexibility after closing that really stings people.
What makes a great rate?
The “best” mortgage rate means the lowest rate available for a mortgage that contains all of the features and terms that you are looking for in a mortgage. It also has the highest probability of maximizing your net worth. That means choosing the optimal combination of interest rate savings, term length, rate type, advice and flexibility.
Some of the features rate shoppers should consider include the penalty to break your mortgage, pre-payment privileges, porting rules, refinance options, readvanceability, payment flexibility and so on. The quality of service from the lender should also be on your radar when mortgage shopping.
How a lower rate could end up costing you more
The cheapest rate doesn’t necessarily translate into the lowest borrowing cost. Lenders are able to offer reduced rates because they typically strip out flexibility. A less-frills mortgage that makes you pay a higher rate or bigger penalty could easily cost you three to four times the interest rate savings.
How can you decide what’s best for you?
No one can predict their future housing and financial needs with 100% certainty but mortgage shoppers should still take the time to contemplate their long-term goals and expectations. That’s truly the only way to make an educated guess as to what their mortgage needs will be.
Here are some questions to ask:
- Do you anticipate moving before your mortgage matures?
- Where will you move and how much might you spend on the new home?
- Will you need to tap into your equity at some point?
- Will you still qualify if you need to renegotiate your mortgage?
- Are you better off with a longer amortization?
Career related:
- Do you expect your earnings to change significantly during the term of the mortgage?
- Will you receive significant bonuses during the term of the mortgage?
- Will you need to move cities during the term of the mortgage?
- Do you view the current property as a “starter house” that you will upgrade when you have the financial means?
Personal:
- What is your relationship status? Is there a chance you will enter (or exit) a relationship during the term?
- Will your family grow during the term?
- Will any family members move out (or back in) during the term?
- Do you plan on doing any renovations during the term?
- Will you require any significant amounts of cash for other parts of your life during the term?
Questions like these above can quickly weed out mortgages with restrictive charge terms.
Tatum Neufeld, BComm
Mortgage Broker • Mortgage Tailors
[email protected]
780-288-0643
