Why the "Best" Rate is not always the "Lowest" Rate

It is easy to confuse the "best" rate for the "lowest" rate in the current mortgage climate in Canada.  To do this though, would be a huge mistake.  As experts who know the importance of providing our clients with the information they need to make confident, educated decisions about their finances, we can't stress this enough.

When clients focus only on the interest rate, they often underestimate what they are really getting.  These "no-frills" mortgages are really just like the name sounds - "no-frills".  This product is very basic and offers few advantages to the client other than a lower or discounted interest rate.  Is it a worthwhile option?  It could be if you are mainly concerned with getting a low rate for your mortgage, but you need to be aware of what you are getting yourself into.

There are cons that go along with the lower stripped down rate and it is very important to pay close attention to them.  For instance, this kind of mortgage is not portable.  You are essentially "stuck" for the duration of your term.  If a new property comes along during this time that you would like to purchase, which can often be the case, you won't be able to take your mortgage with you.  If this happens, you would be forced to end your mortgage with your lender early and it will be at a financial cost.  You will, in all likelihood, end up paying thousands in penalties if you try to break your mortgage before the end of the term.  The same goes if you try to refinance your mortgage early.  It can't be done, and you will be looking at hefty penalties again.  These costs could very easily negate any savings you made initially with the low rate in the first place.

It is obviously not a product for everyone.  The traditional perks that go along with most mortgages are usually absent.  You will need to weigh very carefully if the attractive low rate makes up for what these products don't have.  You will most likely be missing key features such as prepayment options, portability, refinance options and possibly a rate hold.  Typically, these kinds of "no-frills" mortgages are not in the best interest of clients.

So what exactly is the "best" rate?  Many people focus solely on getting the "lowest" rate and not enough on the product, which can be just as important.  Think about getting the best key features that are important to you now, and in the future, at the best rate available.  This will ensure it is the right fit for you and your particular situation.

We asked One Link Mortgages' own Diane Macpherson, AMP, who is Mortgage Professional Canada's Director of Manitoba, for her advice to clients on how to get the best rate:

"Everyone wants the lowest interest rate on their mortgage, because they want to pay the lowest amount in interest.  However, if you aren't educated on other aspects of the mortgage you agree to, you could end up paying several thousand dollars more in penalties simply because of the way the payout penalty is calculated.  Compare shopping for a mortgage to shopping for a car.  Would you only go to a Ford dealership?  Of course you wouldn't!  You would want all options available to you.  Mortgages are no different, and by using a Mortgage Broker you can visit one location and learn about all mortgages from all lenders.  If you prefer to shop around yourself, meet with a Mortgage Broker first to learn what questions to ask, when shopping for your mortgage."

There are many different mortgage products out in the market today and it can be difficult to know which one is just right for you.  This makes a strong case for doing your homework, asking questions and working with us.  As experts in the mortgage industry, we have a firm understanding of mortgage products and the rates that accompany them.  We use this information to our advantage as we negotiate the best rate for your mortgage.

Call us today to find out how we can help you!