The Rate Isn’t the Only Thing

Two years ago I helped a couple who wanted to buy their second home. They were moving up from their first, smaller home, and wanted to get a great rate in order to keep their payments down. After reviewing their information with them, and considering their options, they decided to go with a 5-year fixed rate mortgage. They had a mortgage at bank already that they had to break in order to take advantage of the rates at the time. The bank’s rate was competitive with other lenders but didn’t offer the best package. You see, there’s more to a mortgage than the rate you pay. One policy within the mortgage is what the penalty would be in the future for breaking the mortgage before the end of the term. For a 0.1 per cent difference between the bank’s rate and the rate of another lender I had recommended, the difference in the way the bank calculated the penalty should they leave the bank came back to haunt them. Two years later the clients found out about an interesting way to make your mortgage interest tax deductible. They did the research and figured that it would be worth it for them to pay a penalty to break their mortgage with the bank in order to get the type of mortgage needed to make their interest tax deductible. The only thing was that they never really checked out what their penalty would be, and the day before everything was supposed to swap over they found that the bank was charging $10,000 more than they had estimated. So for 0.10% difference in their interest rate which saved them about $250 in interest cost per year they had a penalty that was $10,000 higher. Hardly worth it in my books, and the main reason why they decided to stay status quo until the renewal. I will leave you with one more tidbit of information: The average borrower make some type of change in their mortgage 38 months after they buy their house. Doesn’t it make sense to get a full-featured mortgage instead of just focusing on the rate as a result? Chris -- Christopher Bisson President and Mortgage Broker The Mortgage Centre 519-763-3900 x1003 www.guelphmortgagecentre.com