When most Canadians think mortgage, they think about a five-year rate.
When we question why they wish to opt for a five-year rate, generally borrowers note that it’s what they heard was best.
In some cases this is absolutely true, but there can be some HUGE costs that may hit them later if they haven’t made a decision based on a review of their longer term goals with an unbiased mortgage broker.
Did you know that most first-time homebuyers leave their mortgage within 36-48 months? It’s also important to consider the way prepayment penalties are calculated, because an early exit from your mortgage could cost you dearly!
The terms of the mortgage are so important on how they fit into your personal life and family plan for the next 10 years.
Many people fixate on rate because that’s all they know. While this kind of thinking can end up earning a borrower a great upfront rate, because of unfavourable terms they may end up with a higher balance at maturity or possibly a high prepayment penalty.
There are broker-only lenders that don’t have a high posted rate (like the banks), so your overall payment penalty could be lower. As most lenders charge a penalty based on the greater sum of three months’ worth of interest or the interest rate differential (IRD), this is really important. The IRD is the difference between the interest rate on your current mortgage and a lender’s posted rate (ie, the difference between your current interest rate and the rate the lender could get for a mortgage similar to yours today). If institutions have higher posted rates, you’ll pay more in IRD penalties.
There is new legislation that forces lenders to articulate how penalties are calculated, but by having higher posted rates, the banks are still benefitting. They quickly adapt to a marketplace to learn how to continue to make record profits. There are some products we can recommend that don’t carry this risk at all, and when we assess your needs and goals we’re in a position to advise accordingly based on our calculations of your specific needs.
To protect yourself, you need a plan from an independent mortgage broker.
Remember that the banks don’t offer unbiased advice, as both their branch employees and mobile sales forces only have access to one line of products – whatever’s offered by that one bank.
Angela Calla, AMP
Dominion Lending Centres-Angela Calla
Host of ” The Mortgage Show” Saturdays @ 7pm on CKNW AM980 Phone :
604-802-3983 Fax: 604-939-8795
Email: acalla@dominionlending.ca