Getting a mortgage can be a very stressful time in a person’s life and since it is
such a huge amount of money, it’s easy to get trapped into the idea that finding
the lowest possible rate will get you the best bang for your mortgage buck. A
recent 2.99% 5-year fixed rate special was the lowest advertised 5-year fixed
rate in Canadian bank history, but super low rates are not without restrictions.
Everyone’s situation can be very different so a bare bones, no frills, low rate
mortgage may work for some, but not be the best strategy for you. Ask yourself
these crucial questions:
1) Could your circumstances change in the next 3-5 years?
- When it comes to term length, 70% of consumers move or refinance before
a 5-year term matures. You might find that a 3 or 4-year term is perfect for
you. If there is a possibility you might be moving before the mortgage term
is up, you're going to require something portable. Portability allows you to
transfer your mortgage, interest rate and terms and conditions without
breaking the existing mortgage and paying hefty payout penalties. It is also
an ideal feature when you are moving to a new property and have an
existing interest rate that is lower than current market rates.
2) Would you like to try paying your mortgage off sooner?
- If you'd like the flexibility to pay off your mortgage sooner, a full-privilege
mortgage is more preferable to a ‘no frills’ product. Most lenders
understand the importance of decreasing household debt-levels, and offer
mortgage products with amazing pre-payment privileges. Some
advantages may include increasing your payment amount by 20% once per
year, or paying up to 20% of the original principal on any payment date.
Home-owners who are disciplined and determined to shorten the life of their
mortgage are encouraged to take advantage of these perks.
3) Do you have a good credit history?
-Keep in mind that a major factor in the interest rate you qualify for is largely
dependent on your credit history and credit score. If your beacon score is
above 650, you can expect lenders to offer you the very best interest rate
available. Clients with beacon scores lower than 620 may be offered a higher
interest rate because their repayment history has been blemished, or they may
not qualify at all. If you are a higher risk to the lender, the odds of getting
the lowest rate will likely be out of your grasp.
It is difficult to predict what life changes may occur in the future, and in most cases
consumers are not willing to forego flexibility in order to save a few dollars each
month. Conversely, a `no frills` mortgage may make absolute sense for you and
your family. For this reason, it is important to work closely with your mortgage
specialist who will help you investigate all your options, and will encourage you to
identify and understand the extras you may be missing out on by getting caught in
the lowest-rate trap.
