Cheaper not always better
Head of Tracy – Sep 27, 2021 / 11:00 a.m. | History: 346871
Over the past two weeks, we have seen several lenders lower their five-year fixed interest rates.
When deciding where to put my clients’ mortgages, the rate is only one piece of the puzzle. This is an important element, of course, but not necessarily the deciding factor.
I have already spoken about it and I think it deserves to be revisited.
Many mortgage lenders offer both a standard mortgage product and a cheaper no-frills mortgage. By cheaper, I mean the no-frills options that are typically about 0.05% lower in price than the standard mortgage.
The differences between the standard mortgage product and the no-frills option may include:
• Higher penalty for early mortgage termination, whether to refinance or transfer to another home
• Extending and combining may not be an option (ie refinancing without penalty during the term)
• Any increase or port of the mortgage means a penalty charged.
• The mortgage cannot be assumed
• The mortgage is not transferable
• May require a good faith sale to break the mortgage (ie no prepayment is allowed)
I only put clients in a low rate option twice (on their insistence) and both times they had to terminate those mortgages before maturity.
We were able to come up with a great solution for one of the clients, and the other had to pay a penalty that she could have avoided if she had chosen the standard mortgage instead.
If you’ve delayed buying a home or refinancing your current mortgage, maybe now is the time to talk to your mortgage professional.
We have a great calculator that can show you if it makes financial sense to renew early or if it makes more sense to stay the course with your current mortgage.
A few minutes of speaking with a professional can save you thousands of dollars in the long run, or could reassure you that you are already in the right mortgage.