Mortgage Rates

How to Get the Best Mortgage Rate

You need to consider more than just the posted rate when shopping for the right mortgage for you. The lowest interest rate may not be the lowest cost mortgage and it may not meet all of your needs.

You need to factor other borrowing costs, fees and penalties to see the overall cost of a mortgage.

Fixed vs. Variable Rate Mortgage Term Pre-payment Privileges Open or Closed

 

Fixed vs. Variable Rate

This is probably the most debated topic in the mortgage world and for the most part, there is no right or wrong answer.

A variable rate would have outperformed a fixed rate for the period from 1950 to 2000, according to a study performed by York University Professor Moshe Milevsky. That period included a time where mortgage rates reached historical highs of over 20%. We are now seeing historically low, fixed mortgage rates. So, there is a greater risk that variable rates will increase relative to today’s fixed rates.

A report recently published by the Canadian Association of Accredited Mortgage Professionals highlights the position that many Canadians (est. 625,000) would not be able to maintain their mortgage payments if interest rates were to rise by 1% or more.

Fixed rates provide some degree of protection against rising rates.

You should make the decision to go fixed or variable only after careful consideration of your financial position, risk tolerance, resources and time horizon.

Your mortgage professional with Mortgage Alliance – Main Street Mortgages has the tools to compare various scenarios and help you to make the decision that’s right for you.

Mortgage Term

Another cost-saving strategy and consideration is the term or maturity of your mortgage. Overwhelmingly, Canadians have gone with a five-year term while ignoring, 1-year, 2-year, 3-year and 4-year terms.

Statistically, Canadians change mortgages every 3.5 years. A traditional 5-year, fixed term mortgage will have penalties to break the term early.

Selecting a shorter term or a variable mortgage can eliminate or reduce these penalties.

Prepayment Privileges

Some mortgages offer a prepayment option to allow additional payments to your mortgage without penalty. This option can result in a higher rate for the mortgage.

Only 36% of Canadians regularly take advantage of prepayment privileges. If you don’t plan to make pre-payments, then why pay for a 20% prepayment privilege.

You could reduce or remove the standard prepayment clause to reduce your mortgage rate.

Open or Closed Mortgage

Like a prepayment privilege, an open mortgage will have a higher rate over a closed mortgage.

With an open mortgage, you’re able to payout your mortgage at anytime without penalty. Lenders want to charge more to manage the risk that they may lose interest income from you.

With a closed mortgage, there is usually a penalty for early termination so the bank can recover the interest owing to the end of the term.

While the mortgage rate on a closed mortgage is lower than on a similar open mortgage, it could cost you more if you need to make a change midterm and pay a penalty.

How a Mortgage Professional Can Help

Features that at first look good could be costly if they don’t fit your lifestyle and financial plan.

A mortgage is a contract, and like all contracts, you should have it reviewed by a professional. A qualified mortgage professional can compare the options from various banks and financial institutions to help you choose a mortgage that meets your needs and is a good fit to your short and long-term goals.

A mortgage professional has experience looking at hundreds, or even thousands, of mortgages and knows what to look for. For instance, have you heard of a “Collateral Charge?” This is a method of registering a mortgage against your property. This can make it difficult (if not impossible) to switch financial institutions for better pricing without incurring additional costs.

There are many factors to consider when selecting a mortgage, and not all banks offer all available options. A mortgage professional can meet with you to determine the right mortgage at the best price to meet all of your needs, not just recommend the limited options available from one bank.

At Mortgage Alliance-Main Street Mortgages, we help our clients negotiate the best mortgage rate possible from our network of Canada’s finest lenders. We not only ensure you receive the best mortgage rate possible, we also structure your mortgage to lower your total cost of borrowing, which is how you truly save money.

For your FREE, no obligations consultation contact the mortgage professionals with Mortgage Alliance-Main Street Mortgages today, 1 (877) 226-4810.