Mortgage interest rates are always a subject of rivalry among lenders in Canada. This war has continued this year with a leading Credit Union announcing a 1.69% fixed rate mortgage a couple of months ago. According to experts, this could be the lowest one-year fixed rate available. You can expect other players to follow suit in a bid to get a slice of the vibrant mortgage market. With a low rate, becoming a homeowner is as easy as spreading butter. Is it? Are such low rates necessarily the best for you? We do not think so.
You may want to consider more than just rates because fees, prepayment penalties, secondary financing and other factors influence the suitability of a mortgage. All these things are contained in a mortgage deal, and rarely are they in black and white.
Prepayment Penalties
Most Canadian Home Buyers get into a mortgage with plans of breaking it eventually. A big number of home buyers never complete the full term of their mortgage. Prepaying is a great way of clearing off your mortgage faster. There are various ways of making prepayments. The rules vary from one lender to another, so this is something you might want to be keen on when choosing a mortgage. Request the lender or broker to take you through all the repercussions of paying early. You might be surprised to find that your best option does not usually have the lowest rate.
Are You In For the Long Haul?
Your tolerance to risk and long-term plans should dictate which mortgage product is suitable for you. Chances are that this product does not have a low rate. For example, a low rate mortgage may be uninsured. For such mortgages, the lender will require you to pay an insurance premium that increases the mortgage amount. If you do the math, it might be better for you to get an insured mortgage at a higher rate, especially if you are not planning to sell the property soon. Use our detailed mortgage calculators to help you crunch out the numbers.
Budgetary Concerns
For most of us, knowing the exact amount you would pay at end of the month is very important. The lowest mortgage rate can be so unpredictable such that budgeting for consistent payments becomes a problem. Some banks in Canada have the option of fixed payments for variable rate mortgages. However, do these always work as expected? NO. A significant increase in interest rates could prompt the lender to alter the payment. Therefore, you may not have to go with the lowest rate if you are looking for some room to wiggle.
Getting the lowest possible mortgage rate is good, but it should not be the only consideration, whether you are buying your first home or refinancing. Even if a variable rate mortgage seems irresistibly good, its other aspects should be attractive too. Remember that there is the possibility of the rate increasing. With a cost-benefit analysis of your mortgage, you will end up with a product that serves your needs, and not necessarily the lowest rate in the Canadian market.
Contact Our team of expert mortgage advisors to review all these options and find the best mortgage solution for you.
