Comparing Interest Rates May Leave You Feeling Left Out in The Cold

This post is written by Trusted Partner, Keith Uthe – Mortgage Alliance Enrich Mortgage Group. To become a contributing editor, please contact our Real Estate Investor Solutions Specialist, David Maxwell at david@reincanada.com.

Almost daily there are posts on social media asking for people’s opinion on whether or not a rate they have been offered is the best or what rates others have been able to receive. Often these posts are very vague in nature and they do not tell the whole story, with missing key pieces of information about the property type and location. In addition every persons’ situation is unique, and what someone else was able to receive as a rate likely does not apply to you, as considerations of credit score, lender relationship, debt servicing, income type, purchase versus renewal, primary home versus rental, mortgage size, net-worth, and timing of request all play a factor. Timing is a huge factor as bond yields change daily so this can greatly impact rates on a daily basis and any exception to a rate that may be possible.

As a broker I see investors and home owners try to compare rates to others all the time and once we have had a conversation, I help them to understand the rate and mortgage differences and what things specific to their situation impact the possibilities and even strategy around the options. This deeper detailed conversation brings clarity as rate is only one part of a mortgage and long-term planning requires looking at all the terms of a mortgage and making an informed decision.

Two key questions a borrower should ask themselves:

#1 “If fixed rates were to come down by .5-1% would they want to change/refinance their mortgage for a lower rate?”. If yes then a bank fixed rate will be detrimental to that plan as the payout penalties will be 3-4 times higher at a bank than at other A lender options available through a mortgage broker, as banks use a ‘discounted interest rate differential penalty’ which is based on discounts off of their higher posted rates and not actual rates.  Actual posted rates are used for calculating interest rate differential penalties used by other A lenders reducing payout penalties by as much as 3-4 times lower than a bank.

#2 “If the property value goes up and refinancing with the bank is not possible for any reason, would you want the option to be able to obtain a second mortgage?”  Most banks register what is called a ‘collateral charge mortgage’ and they do not allow a second charge mortgage to be registered behind them and they can block your ability to obtain a second mortgage.  A collateral charge means that they have registered their mortgage for 100-125% of the value of the property at the time the mortgage was placed, essentially securing all of the current value and possibly even value increases into the future.

When it comes to looking for the lowest rate, be careful what you wish for as it may negatively impact your long-term wealth or hinder future plans.

To discuss your lending strategies and options email me keith@enrichmortgage.ca

Sincerely,
Keith Uthe | Mortgage Alliance – Enrich Mortgage Group

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