Often times, borrowers are fixated on their mortgage rate because it’s the one aspect of their home financing they know to ask about. But, it’s important to look beyond mere rates into the bigger picture surrounding what’s significant when it comes to your specific mortgage needs.
If we dollarize the difference between 2.99% and 3.04%, for instance, it works out to an additional $2.66 in your monthly payment per $100,000 of your mortgage. Over the course of a five-year term, this culminates into just $159.60 per $100,000.
While “no-frills” mortgage products typically offer a lower – or more discounted – interest rate (like the 2.99% used in the example above), when compared with many other available products, the lower rate is really their only perk.
The biggest problem with looking at rate alone is that you may end up paying thousands of dollars in early payout penalties if you opt for a five-year fixed-rate mortgage, for instance, and then decide to move before the five years is up.
No-frills mortgage products won’t let you take your mortgage with you if you purchase another property before your mortgage term is up – ie, portability is not an option with this product. Portability is an important option that could save you money over the long term if the home of your dreams is within your reach before your mortgage term is up and rates have risen, which they have a tendency to do over a five-year period.
This type of product is only plausible for those who have minimal plans to take advantage of benefits that will help pay off your mortgage faster – such as prepayment privileges including lump-sum payments.
Essentially, this product is only ideal for: first-time homebuyers who want fixed payments and have limited opportunities to make lump-sum payments during the first five years of their mortgage; and property investors who need a low fixed rate and aren’t concerned with making lump-sum payments.
It’s understandable why these products may seem appealing. After all, not everyone feels they have the extra cash to put down a huge lump-sum payment. And who needs a portable mortgage if you’re not planning on moving any time soon?
But it’s important to remember that a lot can change over the course of five years – or whatever term you choose for your mortgage. You could get transferred, find a bigger house, have babies, change careers, etc. Five years is a long time to be anchored to something.
Many people won’t sign a cell phone contract for longer than three years that they can’t get out of, so why would they then sign a mortgage for five years that they can’t get out of?
The thing is, you can still obtain great mortgage savings without giving up the perks of traditional mortgages. For starters, many lenders are willing to offer significant discounts if you opt for a 30-day “quick close”.
And there are many other ways to earn your own discounts. For instance, by switching to weekly or bi-weekly mortgage payments, or by obtaining a variable-rate mortgage but increasing your payments to match those of the going five-year fixed rate, you’ll be ahead of the typical discount of a no-frills product before you know it – and you won’t have to give up on options.
Banks don’t give anything away for free – they’re there to make money. That’s why it’s essential to discuss the full details surrounding the small print behind the low rates. It’s also important to take into account your longer-term goals and ensure your mortgage meets your unique needs now and into the future.
As always, if you have questions about mortgage rates, or other mortgage-related questions, I’m here to help!
In 2011, $63 billion was spent in the renovation sector in Canada, exceeding new home construction expenditures by approximately $20 billion. As housing stock ages, more renovation work will be required to renew and preserve the millions of homes already built. Renovations are popular as they provide a way to update the interior and exterior of a home, add space and address problem areas.
One of the easiest ways to add new and enjoyable living space to a house is to build a deck or patio. There are many green features that can be included in the renovation project that will reduce its environmental impact and conserve resources.
Quick reference: green deck & patio features
Occupant health/healthy indoor environments
-Use materials with low pollutant emissions and low-VOC paints or stains
-Include details to prevent moisture damage to house
-Install energy-efficient lighting
-Protect existing trees or shrubs that provide shade or shelter for the house
-Material choices: certified forest products, materials with low embodied energy
-Durability,resilience & serviceability: low-maintenance, durable materials, durable & easily cleaned surfaces
Reduced environmental impact
-Manage demolition and construction waste
-Reuse materials where possible
-Select products and materials with low pollutant emissions
-Avoid expensive future problems by identifying and addressing hazards at the beginning of the job
-Support low maintenance and replacement costs by using quality, durable materials
To learn more about other sustainable technologies and practices that can improve the performance of your home as well as information on owning or buying a home, visit www.cmhc.ca or call 1-800-668-2642.