Many borrowers have been focused on the wrong details when it comes to their mortgage. It’s NOT all about the interest rate. To focus solely on the interest rate can be a costly mistake. The difference between 10 basis points (eg, 3.39% vs 3.49%) on a $350,000 mortgage is a savings of $556 in interest throughout an entire 5-year term, and can actually cost you more than $18,000 by taking the lower rate!
There is a significant list of items that contribute to a larger cost by opting for the lowest rate without taking other factors into consideration.
Below are a few examples that clients were most surprised with this month:
1. If they have posted rates – the fees are at minimum double if not triple to exit your mortgage or make a change. Even if the lender beats the rate you’re getting upfront, it’s going to cost you! Example on a 300k mortgage $12k to exit vs $4500.
2. Semi-monthly payments benefit the lenders, not you.
This is a trick that doesn’t help the borrower pay down the principal at all. We see time after time borrowers who “think” they were doing the right thing (accelerated bi-weekly payments, which actually help you pre-pay your mortgage an extra month’s worth of payments per year). The borrower then gets stuck with that lender as they don’t have enough equity to move elsewhere. This can cause significant payment shock at the end of your term.
3. Life and disability insurance through your lender isn’t “really”portable.
True portability means that the insurance will follow your mortgage from lender to lender. Bank products only allow for portability If you remain with them, so this is a “half truth”. They may not be as competitive or have a product that suits you in the future. This is just another sales capture tactic. If you want true freedom, be sure to get independent insurance!
4. Most lenders prefer to register a mortgage as a collateral charge that costs you money down the road.
Sure it has its place – it’s sold as a convenience – but be sure to read the fine print. You have to re-qualify and pay fees to access additional funds down the road. How is that convenient for you?
5. Want the lender to include property taxes with your mortgage payment? Did you know they charge you for that option?
They also only pay your taxes annually, which means they’re sitting on your money. If you opt for automatic withdrawal from the city you live in directly, there can be up to a 1% discount. With some insured mortgages it’s mandatory for a while for them to collect your taxes and pay on your behalf, but it’s always best to keep your money in your control whenever you can!
6. Did you know that if you bought a home with mortgage insurance (most commonly but not always for a less than 20% down payment that is portable and you can do a top up?) The lender’s policy is to apply for new insurance to collect a new premium to increase the mortgage amount. They may not have the product you need the 2nd or 3rd time around if you qualify for a top up it saves you thousands. Also they have there own internal policies as to how long they will allow a transfer to happen with insurer’s. They are to avoid top up’s and get new policies…the price you can pay? On a 300k mortgage say for a self employed borrower $16,350.00 added to the 300 k instead of a few hundred dollars on average!
The Angela Calla Mortgage Team can ensure you have clarity of all the pros and cons of the options out there for the lowest cost of home ownership contact us today at 604-802-3983 callateam@dominionlending.ca