It’s easy to get caught up in the idea that comparing mortgage rates will guarantee your dollar is stretched further. While this may be true for particular situations, there are many scenarios where this strategy is not effective. Following are three reasons why it doesn’t always pay to make a decision based solely on rates.

Reason #1

Your long-term plan and risk tolerance should determine which mortgage product is right for you. This product may or may not have the lowest rate.

For instance, there are cases where lenders will offer lower rates for insured mortgages. With insured mortgages, however, you’re charged an insurance premium, which is usually added to the mortgage amount. But if you’re not planning on keeping the property for a long enough time to offset that cost, it may be better to take an uninsured mortgage with a slightly higher rate. The cost difference you will pay with the higher interest rate may still be less than what you may pay in insurance premiums.

As another example, if you prefer to budget for a consistent payment and can’t handle rate fluctuations, it may be better to go with a higher fixed-rate mortgage. If you think current rates are low enough and you will be living in your property for at least five years, it may be wise to also opt for a mortgage with a longer term.

Reason #2 

One of the biggest mistakes people make when merely comparing mortgage rates is failing to consider important factors such as prepayment options to help pay off the mortgage faster, whether secondary financing options are allowed, early payout penalties, or what fees are involved.

It’s not enough to simply compare mortgage rates because you have to know what “clauses” are contained within the mortgage deal. There may be cases where you will find a lender with the lowest rate and willing to pay for your closing costs, or even provide you with cash-backs after closing.

Reason #3

Lenders can change their rates at any time. As such, if you’re shopping for rates with one lender and then approach another that gives you a lower rate, it’s quite possible that the first lender has also dropped its rates. This is why it’s important to get pre-approved with a lender once you a mortgage that fits your needs. In some cases, you can secure your rate and conditions for up to 120 days.

These are just three reasons why it’s not enough to merely compare mortgage rates. The mortgage rate you may qualify for is also highly dependent on your credit score among other things. In order to get the best mortgage deals, you need to have solid credit.

Misconception No. 1: Your interest rate reflects the true cost of your mortgage.

Your annual percentage rate (APR) is actually the figure that represents the true cost of your mortgage. It is inclusive of your interest rate, points, mortgage insurance (when applicable) and other fees, including mortgage default insurance and lender fees. It does not include the cost of your homeowners insurance policy. The APR is typically higher than your interest rate because it incorporates the rate and the fees. In fact, when signing your mortgage approval, have a look at your APR instead of the interest rate because it gives a better sense of the total cost over the life of the loan.

Misconception No. 2: Mortgage rates are only released once per day.

Mortgage rates for all types of mortgages can change frequently, sometimes dramatically, throughout the day. Because of the rapid changes in mortgage rates and a lender’s ability to control what is offered, this is why it’s important to work with an experienced broker that has access to top lenders rate discounts.

Misconception No. 3: I must get my mortgage through the same lender I was pre-approved with.

A pre-approval is a conditional agreement that estimates the size of the home loan a lender would fund for you. It typically involves income verification and a credit check. However, you are under no obligation to proceed with the lender that gave you the pre-approval. For most of my clients, we can often have more than one pre-approval in place for you so you are protected if rates drop with another lender.

Misconception No. 4: You will almost always get the best mortgage interest rates at the bank where you do your everday banking.

While some banks do give their customers discounts, it’s unlikely your bank will offer the best interest rate available simply because you bank there. To get a competitive mortgage rate, work with a mortgage broker you trust so they can shop all lenders on your behalf and compare not only rates but terms as well.

Misconception No. 5: When taking out a mortgage with your spouse, lenders will look at each of your credit reports equally when determining the interest rate you qualify for.

When applying jointly for a mortgage, lenders will review each of your credit reports most commonly with Equifax and Trans Union. Each lender views credit differently, some will look at the primary applicants score more than the co-applicant and others have an average scoring system.  I will know immediately by looking at your credit score and report which lender will be the best fit.  Sometimes this can determine the best choice.

Misconception No. 6: You cannot get a mortgage with less than a 5 percent down payment.

It is a common misconception that you need to put down 10 percent, 15 percent or even 20 percent on a home, especially in light of the recent housing crash. But with as little as 5 percent down, you can often can be approved for a mortgage and pay mortgage default insurance in lieu of a higher down payment.  This premium gets added on to your mortgage amount.  In order to avoid it all together, you need 20% down.  With some banks, you can even borrow the down payment.

When in doubt, call with any questions, We are here to help!

This past Monday we were seen sponsoring a hole for the Vancouver Police Department Sergeant’s Golf Tournament hosted at the Pitt Meadows Golf Club. The day was a great day for golfing as well as getting to meet some of the sergeants. We had a couple of fun games set up at hole number one to interact with the golfer’s and in addition, let them know about our First Responder’s Mortgage Program. We wrote about this program not too long ago and have the link to that post below!

Connecting with our clients is a priority for our team. Having the opportunity to share about the programs we offer as well as we saw a few of our existing clients on the course, bringing in that community feeling that is so important to our team.

First Responder Mortgage Program™

You’ve been searching for a home; you find a home that has a lot of things on your list of what you are looking for. The only issue is that it requires some renovations and you don’t have the excess finances for those renovations. That’s where a purchase plus improvements mortgage comes in.

Many people are not aware that they can add renovation costs to their mortgage. CMHC did a survey and found that 37% of mortgage consumers that took part in the poll did not know about the purchase plus improvement mortgage options. This mortgage program covers not only the purchase price of your home, as well as the additional money to cover renovation costs. The cost of borrowing is put all into one payment, simplifying it to purchase your home and renovate it once the deal has closed.

How does this program work? And what are the steps to adding in the purchase plus improvements mortgage? The very first step would be to determine that improvements need to be done. An example would be if your home needs a new floor, paint, kitchen renovation, or appliances that need to be replaced? It’s recommended to seek 3 quotes from contractors to make sure that you are getting the best quality service and price. Speak with your broker about the improvements and they will line up the financing approval that will include these costs. Once you have determined the renovations and costs, you will go through the standard home buying process. After the sale closes and you take possession of the home, the lender will forward the agreed-upon costs of the renovations to your lawyer, who will hold that as cash in trust. Your contractor can start the renovations that were agreed upon with your lender right away. The work typically must be complete within 90 or 120 days. Once your reno is complete, the lender will send a representative to take a look at your home. Once approved, your lender will provide the money needed to pay your contractor.

For further details about this program or in the event this mortgage program isn’t what is right for you, your broker can go over other methods of  borrowing against home equity

Call us anytime to ask about the different programs and options for your mortgage needs.