Mortgage fine print……Part 1 – Conversion Rates
As I have mentioned before, choosing a mortgage based only on the lowest rate is not always a decision that saves you the most money in the long run. Mortgages are not a one-size-fits-all product and your unique personal situation really needs to determine the mortgage that suits you best. Over the next few blogs I will outline and describe some qualitative differences that occur between different mortgage lenders and why you should know about them before you make your final decision.
Variable Rate Mortgages are quite popular right now due to a low Prime rate and the forecast for this to continue into 2015 or longer. A Variable Rate Mortgage is closed for a term (usually 5 years) and the rate fluctuates with Prime but can be ‘locked-in’ at any time. Not all lenders have the same ‘lock-in’ clause so this is something you need to determine prior to signing on the dotted line. When you lock in, what fixed rate does your contract say will be offered to you? One group of lenders will give you their best rate for any fixed term that is at least as long as the time left on your existing mortgage. Others will offer you a set discount off their current posted rates, which can be as small as 1%. To put that in perspective, 1% off today’s posted five year fixed rate would be 4.24% vs. the best fully discounted rate of 3.15% that would be offered by the first group. On a $350,000 mortgage, that’s a difference of over $300 per month in interest!
As you can see this could really add up so this is one of many questions to ask before deciding which lender and/or product is best for you.
Please don’t hesitate to contact me with any questions you may have or for further tips.
Jerry Sims, AMP
TMG – The Mortgage Group Canada Inc.