Often times, borrowers are fixated on their mortgage rate
because it's the one aspect of their home financing they know to ask about.
But, it's important to look beyond mere rates into the bigger picture
surrounding what's significant when it comes to your specific mortgage needs.
If we dollarize the difference between 2.99% and 3.04%, for
instance, it works out to an additional $2.66 in your monthly payment per
$100,000 of your mortgage. Over the course of a five-year term, this culminates
into just $159.60 per $100,000.
While "no-frills" mortgage products typically
offer a lower - or more discounted - interest rate (like the 2.99% used in the
example above), when compared with many other available products, the lower rate
is really their only perk.
The biggest problem with looking at rate alone is that you
may end up paying thousands of dollars in early payout penalties if you opt for
a five-year fixed-rate mortgage, for instance, and then decide to move before
the five years is up.
No-frills mortgage products won't let you take your mortgage
with you if you purchase another property before your mortgage term is up - ie,
portability is not an option with this product. Portability is an important
option that could save you money over the long term if the home of your dreams
is within your reach before your mortgage term is up and rates have risen,
which they have a tendency to do over a five-year period.
This type of product is only plausible for those who have
minimal plans to take advantage of benefits that will help pay off your
mortgage faster - such as prepayment privileges including lump-sum payments.
Essentially, this product is only ideal for: first-time
homebuyers who want fixed payments and have limited opportunities to make
lump-sum payments during the first five years of their mortgage; and property
investors who need a low fixed rate and aren't concerned with making lump-sum
payments.
It's understandable why these products may seem appealing.
After all, not everyone feels they have the extra cash to put down a huge
lump-sum payment. And who needs a portable mortgage if you're not planning on
moving any time soon?
But it's important to remember that a lot can change over
the course of five years - or whatever term you choose for your mortgage. You
could get transferred, find a bigger house, have babies, change careers, etc.
Five years is a long time to be anchored to something.
Many people won't sign a cell phone contract for longer than
three years that they can't get out of, so why would they then sign a mortgage
for five years that they can't get out of?
The thing is, you can still obtain great mortgage savings
without giving up the perks of traditional mortgages. For starters, many
lenders are willing to offer significant discounts if you opt for a 30-day
"quick close".
And there are many other ways to earn your own discounts.
For instance, by switching to weekly or bi-weekly mortgage payments, or by
obtaining a variable-rate mortgage but increasing your payments to match those
of the going five-year fixed rate, you'll be ahead of the typical discount of a
no-frills product before you know it - and you won't have to give up on
options.
Banks don't give anything away for free - they're there to
make money. That's why it's essential to discuss the full details surrounding
the small print behind the low rates. It's also important to take into account
your longer-term goals and ensure your mortgage meets your unique needs now and
into the future.
If you are planning to buy a house within Durham Region,
contact me. I can help you with the buying process and refer you to a mortgage
specialist that can explain the products and help you choose the right mortgage
product. Let me help you every step of the way!
Randy Miller
Sales Representative
Re/Max Rouge River Realty Ltd., Brokerage
905-668-1800 or 905-427-1400
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