More Than A Rate
February 1, 2016
Separate Yourself from the Pack.
I commonly find myself answering questions about mortgage rates with the same response:
“If getting a mortgage was about just selecting the lowest percentage from a list of percentages, there would be absolutely no reason for mortgage brokers to exist.”
Of course mortgages are about more than just the rate. In our MORTGAGE TERMS ARTICLE we covered some of the basics – such as amortization, penalty charges, pre-payments, collateral charges, convertability and portability. We cover these topics extensively in our articles for those willing to learn more – just see our other articles on this site.
However, both mortgage professionals and consumers can get a little carried away with mortgage rates and it becomes a game – unfortunately the result of this game can be people signing mortgages at really low rates with a tonne of hidden fees and costs that they were not aware of or informed about.
WHY ARE WE SO RATE OBSESSED?
A mortgage product should be best suited to meet your financial goals and of course a low rate is a part of this. However, this can get lost in conversations (and sometimes even competition too) among friends, family and work colleagues. Too often we (and I include mortgage professionals in this) get sucked into this game that goes “John got this rate, so I need to beat it”. This is completely false.
The part we are missing is that we know very little else about ‘John’ in this sentence and don’t consider other factors. How risk averse is John? What are his near and long term financial and personal goals? What is his ‘rainy day’ plan should anything go wrong?
What John could be doing is signing a mortgage with massive hidden costs and fees that will come back to bite him later.
AN EXAMPLE OF BEING TOO RATE FOCUSED..
Let’s put some numbers to this and create an example for this scenario:
I think it’s fairly obvious what most people would choose, given this information. However, let’s consider just one more piece of information. Let’s say that the 2.44% product has a 3% penalty and the 2.64% a ‘normal’ penalty.
On a mortgage of $330,000 over a 25 year amortization, this can be $6,500 higher costs for Option 1! This completely dwarfs any interest savings you might expect.
You might not consider this when getting your mortgage but actually studies have shown that as much as 60% of people break a 5 year mortgage for many different reasons – moving house, refinancing, paying off debts, getting a better rate/deal.
Now bear in mind this is just one of the mortgage features for these 2 options. We haven’t even considered anything else yet and already that low rate product doesn’t look so great anymore…
This is why we at GTA Mortgage Pros are the only mortgage service to provide full calculations of all the hidden costs and features of your mortgage up-front. This service is absolutely free and takes just 90 seconds of your time.
Check out our free Toronto mortgage broker service.
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