It's Not all About Rate!

Since the Bank of Canada’s overnight rate started its upward climb, mortgage rates have been the talk of the town.

We’ve become so accustomed to historically low rates these past few years that the thought of even a small increase is especially daunting. But there are so many more factors to consider than just the rate you see - many of which will affect your cost of borrowing as much as (if not more than) rate! Let’s touch on just a few:

Early Payout Penalties
With rates going up, securing a low fixed rate might seem like a great idea today. But remember that if you end your fixed term early for any reason you could be on the hook for a sizable prepayment penalty. In some cases penalty charges can be as much as about 4.5% of the remaining balance of your loan - around $18,000 on a $400,000 balance - on a 5 year fixed rate. Many variable products, on the other hand, will carry a penalty of 3 months’ interest. Of course nobody goes into a mortgage expecting to break it early, but life happens. Knowing the penalty structure of your loan ahead of time can help to prevent major financial heartache later!

Prepayment Privileges
Many lenders offer prepayment privileges that allow borrowers to make a number of lump sum payments on their mortgage throughout the year without being penalized. These payments go directly to the principal and shorten the amortization of the loan, saving you interest cost over its lifetime. Knowing about your lender’s specific prepayment structure upfront is key because, as I mentioned above, prepayment outside of allowed parameters can result in hefty charges that negate any possible savings!

Portability
A key mortgage feature that’s often overlooked by borrowers is portability. Many lenders offer a portability feature - but not all do - so it is important to ask ahead of time to know what your options are. While there will be a qualification process to determine if your lender will port to your new property and there are fees associated, porting can be much more affordable than paying steep penalties to break your term early.

The features, benefits and downfalls of individual mortgage products are so diverse that researching them all would be nearly impossible. But that’s what your mortgage broker is here for! Let me take the burden and help you choose the best mortgage that best supports your long term financial goals!