We have all seen “Low Rate” Mortgages advertised. Have you ever wondered why certain banks offer these mortgages? Did you know that not all low rate mortgages are created equal? It’s true and here is why.
Low Rate Bank Mortgage
We have all seen the advertisement now of some of the big banks selling 3% and less discounted five year fixed mortgage products. There is no gimmick in that they do in fact offer the low interest rate listed. Yet a surprising amount of Canadians miss why the bank offers this mortgage product and the severe restrictions placed on you as the mortgage holder. As with all contracts you will enter into, the devil is in the details and this is no exception.
John and Cindy in Barrie were coming up to the renewal of their mortgage and their eye was caught by an ad stating a low rate bank mortgage refinance that would help them pay off their mortgage quicker. As they did their day to day banking with this bank, it was a logical choice to get more details. When they sat down with the bank’s representative, they were delighted to learn that they did qualify for this low rate mortgage and that it would help them pay off their mortgage quicker.
What they were not told were the limitations and restrictions that would apply to them in many cases if they took this “low rate” mortgage product.
Then John and Cindy called me as their Barrie Mortgage Broker to review this offer. It did not take long to point out the nature of the Mortgage Refinance they were considering and these were the areas I brought to their attention.
The Limitations of the Mortgage Loan
What the bank representative omitted to explain to my clients was limitations in the amortization and prepayment privileges as part of Mortgage Planning . This “low rate” mortgage comes with a maximum 25 year amortization and only 10% prepayment privilege. This in contrast to a potential 35 year amortization and 20% prepayment privilege being available with similar mortgage products I have access to as their Barrie Mortgage Broker. The difference here in payment on a 250K mortgage is $222.19 monthly of after tax income ($400 before) which can make all the difference if times get tough. Or in case of an inheritance, you would only be able to prepay 25K without penalty versus 50K per year penalty free with a 20% prepayment.
The Hidden Restrictions of the Mortgage Loan
In addition to the above, I explained to John and Cindy that there are restrictions that can make life very difficult for the mortgage holder such as a required bonafide sale of the home to a non family member to even have the option to break the mortgage. Or if you for your own reasons want to break your mortgage, you can only change to another of that bank’s mortgage products. How hard do you think your bank will try to earn your business or be competitive knowing that you can’t move your business elsewhere?
Barrie Mortgage Broker to the Rescue
After explaining the facts at my office in Barrie to John and Cindy, they were concerned with how to proceed. I was delighted to show them that there are lenders in the Canadian mortgage market who offer the same low rate mortgage products without the limitations and restrictions imposed upon them with their bank.
We found them a mortgage with a competitive interest rate and a five year fixed term with full privileges. I scanned the fine print for any adverse conditions and was happy to report none. We also had the option of an extended amortization, 20% prepayment without penalty, and they could sell their home and break their mortgage at their discretion without undue concern. John and Cindy left my office feeling valued as a client and I was glad to be able to come to the rescue!
So the next time you are intrigued by a big bank’s “low rate” mortgage refinance, ask yourself why they are offering you such a good rate and what you have to give up for them to be fair with you. The many limitations and restrictions will make you feel like you just bought a cheap imitation brand product which is great until you get home and realize the quality just was not there. Helping you get a great mortgage with all the perks is what I do as your Barrie Mortgage Broker.