Are You Caught In the Rate Trap?

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.