Lowest Mortgage Rates Are Not Always The Best? Top 5 Reasons

In my 30 year mortgage career, it never fails to amaze me that rate is the only thing clients seem to want to talk about. At Robert Floris’ Mortgage Architects office, both myself and Sean Howard make a strong attempt to help our clients be the most educated client in order to make the best mortgage decision for their families. Today we will share some of the key areas we discuss to help our clients understand why the lowest mortgage rates are not always the best.

1. Client Stress Test

Many of our clients enter our initial mortgage conversation with the rate quote they have seen advertised somewhere. What they do not realize is that it is a variable adjusted rate. When Sean or I explain that it can move higher or lower and that they will need to keep an eye on the economy or the Bank of Canada rate, they stop and ask more questions. Let’s face it, the variable rate is a great product. However, if you are going to be constantly stressed worrying about the direction of mortgage rates, this product may not be for you. In this case, the lowest mortgage rates are not always the best. Your health is more important and a higher fixed rate mortgage might be better for you.

2. Penalties

The mortgage broker has hundreds of choices for their variable clients. Is it easy to pick the lowest rate? Of course. But when considering if the lowest mortgage rates are not always the best, did you know that some lenders charge penalties to get out of the mortgage? Over the years, we have seen it all. Here are just some of the reasons we have seen for our clients breaking their mortgages:

• realize they do not like the neighborhood
• divorce
• health issues
• loss of job
• transfer of job
• outgrow the home

These are many of the reasons people exit their mortgage prematurely. Many people who do not realize that the lowest mortgage rates are not always the best choose deep discount mortgage companies that charge a 3% penalty on the entire amount of the balance of the mortgage remaining. An example of this would be a $10,500 penalty on a $350,000 mortgage. Ouch! Please educate yourselves on this condition.

3. Portability

As discussed above, there are many reasons that people move. The key is flexibility. If you move, you do not want a penalty and you do not want to lose your great mortgage rate. A good mortgage should have a great rate but also to really save money, it should be transferable.

4. Goals

Every individual or family should view their mortgage as part of their financial plan. In terms of cash flow and vulnerability, how does their individual mortgage rate fit for their lifestyle and savings goals? One of our clients, Mary, had student loans, was just starting her career and wanted the lowest payment over the longest amortization with a fixed rate. Her goal was stability. Everybody is different.

5. Payment Frequency and Amortization

Sean and I strongly believe that this is the area that is most overlooked but the easiest area to save money. The general mortgage public believes rates save money. They are right! BUT, as a mortgage consumer, your savings can be massive if you really study amortization and payment frequency. That’s where you save the most!

At our Mortgage Architects Office in Hamilton, Ontario on the East Mountain, it is the area we enjoy teaching more than anything. Good business is good for our clients!

Robert Floris is a Mortgage Broker. His office is located at 651 Fennell Avenue East in Hamilton, Ontario. If you would like to speak with Robert, he can be reached at 905-574-9200 #215. Alternatively, you can contact Robert here.

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