It's NOT All About The Rate
Michael Hallett • June 22, 2015
ob-sess(ed):
the act of being preoccupied or fill the mind continually, intrusively and to a troubling extend.
As mortgage consumers we get obsessed with obtaining best rate, we caught in the cross-hairs of lender marketing. Lenders spends millions of dollars annually to pitch their message; some listen and some don't. As consumers we all want make sure we are getting the best value for our money. When entering into the world of purchase and owning real estate, there should be a detailed plan laid out for one to follow. We should make sure all our plans fit the mortgage products we inherently rely on. Would you put a square peg in a round hole?
Along with making sure the mortgage product is suitable there is also an element of competition between friends, family members and even colleagues at work. Consumers thought process goes something like this (...and I was once part of this faculty)..."I need to get the lowest rate so that I supersede the rate that (enter name here) got..." That statement couldn't be further from the true, it's 100% wrong.
We all want to pay as little as possible up front, but never put any thought into life's uncertainties. What if you need to break the mortgage?; to consolidate some debt, require equity for a renovation, moving to another town/city where your current lender does lend, leverage equity to take advantage of some financial planning strategies...the list goes on.
60% or 6 out of every 10 mortgages that originally opt for a 5 year fixed term are changed/broken/altered 38 months into the contract. The act of breaking ones mortgage will yield a penalty on the outstanding balance for 22 months. The penalty will be either an Interest Rate Differential calculation or 3 month interest, whatever is greater. There is so much more to choosing a mortgage rate and term than just the 5 bold characters ?.??% being advertised.
Borrower's have to look past the numbers and educate themselves on the terms of that rate being offered; the fine print!
Depending on the RATE and its terms that penalty can be dramatically different. Lenders all have a suite of various products to fit your the consumers wants and needs. It's up to you and your Mortgage Expert to navigate through the gauntlet of rate sheets and product information to find what works for you and your specific scenario. As Mortgage Experts we have access to a wide range of lenders; major chartered banks, credit unions and investment lenders. At times there could be a difference of 10 to 20 basis point (0.10-0.20%) from lender to lender.
Let's take for example a rate of 2.44% vs 2.64% for a 5 year fixed term. It's obvious which one most borrowers would gravitate to, but is it worth it? What are the pitfalls? These two rates have drastically different penalty structures even though they are offered by the same lender. The 2.44% rate holds a 3% penalty on the outstanding mortgage balance (OSB). The 2.64% rate calculates the Interest Rate Differential (IRD) or 3 months interest, whatever is greater to determine the penalty.
Here is an example of what it would cost to exit these mortgage contracts early. We will use the 60% rule along with a starting balance of $330,000, 25 year amortization and $0 prepayments made to the principal for the first 38 months.
Rate 2.44% 2.64%
OSB @ 38 mos $298,401.05 $299,153.80
Penalty 8,952.03 $2,468.02
Difference $6,484.01
Monthly payment $1,468.45 $1,501.39
Difference over 38 mos $1,251.72
Same term but different mortgage product yields a difference in penalty of $6,484.01. Over that same 38 month term the higher interest will have an 'out-of-pocket' difference of $1,251.72. Now ask yourself, with all of life's uncertainties which would you prefer the 2.44% or 2.64% rate. I would choose the higher rate and pay $5,232.29 less.
This is where having a knowledgeable Mortgage Expert working for you pays off in spades. They will review your plan and recommend the best mortgage product. Make sure you examine all aspects of the mortgage, 60% of 5 year fixed mortgages are altered. Here's yet another reason to always consider variable rate mortgages, much more flexible and only yield 3 month interest penalty on the OSB no matter where you are in the contract timeline.
If you are looking for personalized mortgage advice, contact me anytime!
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Playing in the forest today. Always fun exploring. #mountainbikingmortgagebroker
Mortgage Brokering meets mountain biking and craft beer. A couple months ago I set for a bike ride with the intention of answering few mortgage related questions, mission accomplished. Any good bike ride pairs nicely with a tasty beer which we enjoyed @parksidebrewery. Hope you see the passion I have for brokering, biking and beer. @torcabikes #mountainbikingmortgagebroker
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Spotted a ski-bunny today @kirstinjhallett so I trapped ‘er. 📸 credit @troy.hartley
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Wood to wood gap in Whistler.
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Canadian tuxedo.
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Does anybody need or want any firewood? It’s free...you come pick it up.
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Buying a Home? Follow These 6 Key Steps for a Smooth Experience Buying a home is likely one of the biggest financial decisions you’ll ever make. It’s exciting—but it can also be overwhelming, especially when it comes to understanding how mortgage financing works. To help make the process smoother (and far less stressful), here are six essential steps every homebuyer should follow: 1. Start With a Mortgage Professional—Not MLS It’s tempting to start your home search by scrolling through listings and booking showings—but the real first step should be speaking with an independent mortgage professional . Unlike a bank that offers only one set of products, an independent mortgage expert has access to multiple lenders and options . That means better advice, better rates, and a better chance of finding a mortgage that truly fits your needs. 2. Build a Personalized Mortgage Plan Unless you’re buying your home with cash, you’ll need a solid financing strategy. That means: Reviewing your credit score Running affordability calculations Exploring different mortgage types, terms, and features Understanding down payments and closing costs The sooner you start planning, the more confident you’ll feel. Don’t wait until you’ve found the “perfect” property— get ahead of the process now . 3. Figure Out What You Can Actually Afford What a lender says you can borrow doesn’t always match what you can comfortably pay each month. Take a close look at your budget, lifestyle, and spending habits. Think about how your mortgage payments, property taxes, utilities, and other costs will fit into your everyday cash flow. Avoid the stress of being house-poor by knowing your real-life affordability , not just your paper pre-approval. 4. Get Pre-Approved the Right Way A true mortgage pre-approval isn’t just entering numbers into an online calculator. It means: Completing a mortgage application Submitting all your required documentation Having a mortgage professional fully assess your file When you’re officially pre-approved, you’ll shop for homes with confidence , knowing what you qualify for and that you’re financially ready. 5. Submit Your Documents Promptly and Stay Flexible Once you find a property and your offer is accepted, time is of the essence. That’s when all the upfront work you’ve done really pays off. Be ready to: Provide additional documentation if requested Respond to your mortgage professional quickly Stay flexible and proactive throughout the approval process Your lender needs to verify everything before finalizing the loan, so staying organized is key. 6. Don’t Make Big Financial Changes Before Closing Once you’ve secured financing and waived your conditions, freeze your finances until after you get the keys. Seriously—don’t: Change jobs Apply for new credit Take out a loan Make a large withdrawal Even small changes can throw off your approval. Keep everything status quo until you officially take possession. Recap: 6 Steps to a Smooth Home Purchase Connect with an independent mortgage professional Create a mortgage plan early Know what you can afford (not just what you qualify for) Get fully pre-approved Stay on top of documentation Avoid major financial changes before possession Ready to Buy with Confidence? If you’re thinking about buying a home—or just want to know what’s possible—let’s talk. I’ll help you map out a personalized plan that makes your homebuying journey feel simple, strategic, and stress-free. Reach out anytime. I’d love to help you get started.
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