Is your mortgage interest rate everything? It depends …
Is your mortgage interest rate everything? It depends …
As rates have been for the past few years and still are, very attractive (i.e. low) there can be a tendency to over focus on rate and neglect many of the other also important factors that should be considered when selecting the best mortgage for oneself. The over focus on mortgage rates can also likely be partially attributed to the fact that interest rates are easy to market, convenient to put in an ad, and something tangible that most of the people have some familiarity with. However, as I will talk about below this may be masking other important factors that one should consider along with rate in ultimately determining where it is best to go for their mortgage.
Mortgage rates between banks for the same applicant would typically be very similar which makes sense. However, there is a lot of fine print behind each rate which each applicant should be aware of as what is in the fine print may ultimately be the deciding factor on where the client would be best suited to have their mortgage. Rate may also become secondary or tertiary to other goals and needs of the client so clearly understanding a person’s situation, objectives, and plans are paramount in order to best serve a client.
Additional factors to know about other than just the interest rate of a mortgage include:
- Pre-payment privileges (cumulative or non-cumulative)?
- Is it portable?
- Is it assumable?
- Is it transferable/switchable?
- Penalties for early pay out?
- What payment frequencies are allowed?
- Is there an attached line of credit?
- How will it be registered on the title of the property
Many of the above options can result if penalties or savings down the road if the individual wants to do something with their mortgage (e.g. sell their home and move to another, switch lenders at renewal for a lower rate, pay down their mortgage with a lump sum amount or increase their regular payment amount, etc.).
Also, like many other things, you pay for what you get, or do not get. In terms of mortgages, the more flexibility/options you have, the higher the rate and the less flexibility allowed, typically the lower the rate. So everything product has its place it is just a matter of finding the best product to match each client.
Here are to examples of then a client will sacrifice some options for a lower rate and then when a client would sacrifice rate for more options:
- If a client knows that they will likely not use any or very little pre-payment privileges over the term of their mortgage as they have planned it out well from the beginning. They will also not be needing an additional line of credit secured by the property and they are comfortable with a 5 year fixed rate mortgage. This situation would likely be best suited for a “no frills” mortgage that offers the lowest rate with little other options or flexibility.
- Alternatively, if a client knows from the beginning that they will be able to pay out their mortgage in full or a very large portion of it (likely close to or exceeding $100,000) in less than 12 months and does not want to have to pay a penalty when this takes place. They need the mortgage today but also need the flexibility to pay it out in less than a year. This situation can happen for a few reasons: client may be selling another property but it has not yet sold, an inheritance may be coming but needs to be processed, someone is buying the home today but will renovate it and sell immediately following, etc.
Mortgages are multi-faceted products that have been designed to suit a multitude of situations, applicants, goals, and needs. As such they can be difficult to navigate for the average consumer and we are fortunate to have professional that can help clients at no charge to them in the process.
The message here is that interest rate, along with the many other factors of mortgages should all be considered together when matching a mortgage with an applicant. Please contact me for help in selecting the best Vancouver mortgage for you, not only today but also over the next several years.
Maury | (604) 603-2520 | Maury@MauryLum.com | www.MauryLum.com |
