10 Oct 2019

You need a mortgage. You are buying/renewing/refinancing. So what do you do? Increasingly a lot of people are turning to the internet to find out what the BEST RATE is. Ahhhh, the best rate.  You see a flashy advertisement for a rate website that promises you the best of the best. You’re convinced this is it! Your new mortgage match made in heaven! You call, you get a salaried agent on the phone, who tells you “oh, sorry, no, that’s for blah blah blah and you’re doing blah blah blah” and at which point you tune out and say “screw this”.

Sound familiar? I hope not.

If so, don’t be mad. Just understand this: shopping for rates online is not a one-size-fits-all proposition, and you better be prepared for an onslaught of (mis)information before you make a true determination of your rate.

The first and most important thing is that RATE is important but it should not be as important as you make it out to be.

Huh? “But Jake”, you say, “lowest rate means I pay the least per month”.

Let’s take my client Erykah for a second. She got married, had two kids, and was happy in love. Her ex- (broker, not husband, but there’s an ex-husband also) suggested she save .05% on her mortgage to get the best RATE but misinformed her of the penalty that it’s 3% OF THE MORTGAGE BALANCE. So now Erykah and Rodney are splitting ways and she wants to buy him out. Add $18,000 penalty to her $600,000 mortgage. Ouch. No way out, too. Ex-husband wants his money, so she has to break it. What could the penalty have been? 3 months’ interest or about $5500 if she went the right way.

Lowest rate matters for sure but remember: You get what you pay for. If you don’t care

  1. how hard it is to break your mortgage
  2. how much you’ll pay when you do
  3. how crappy your port/transfer policy is if you sell and buy
  4. how difficult pre-paying is
  5. how infrequently you can pre-pay
  6. how even after your term is done you STILL have to pay a legal fee to leave the lender

Then… be my guest! Let’s get you the crappiest possible mortgage terms but get you the best rate.

So now that I got that out of the way, let me tell you about the biggest difference in mortgage rates in Canada right now.

This boils down to two things:

Are you BUYING? Or REFINANCING? (I’ll get to RENEWING in a moment).

If you are buying and bought for less than $999,999.99 and could take 25-year amortization you will get the “best rate”. This is because:

  1. if you have 5-19% down you are the creme-de-la-creme today. Your mortgage is GUARANTEED by the Government so you will get the BEST rate.
  2. If you have 20% down – or more – your mortgage can still be guaranteed by the Government but you don’t pay any mortgage insurance. Well, guess what, you’re going to pay .10% more for this luxury which is still better than going with the alternative.

If you want a 30-year mortgage then that’s great, but I’m sorry, you will get a GOOD but not GREAT rate because the Government can’t step in, and, assure the lender they will cover the debt if you don’t, thus, the lender passes the extra risk to you, the borrower. Prepare to pay about .30% more for this mortgage.

If you’re buying for $1, 000,000 or more then you’re not able to have any government guarantee, therefore your rate will be .3 higher as well (not .3 higher than the 30-year term, the same rate, and no benefits of a lower rate).

If you are REFINANCING then forget getting the best Government-guaranteed rate. Not happening. The Government, in their infinite wisdom, got OUT of the refinance game in 2017 and decided to not back-stop these transactions. It sucks. It killed the refinance market for self-employed borrowers which is why private lending has gone UP, way way way UP, in terms of being an option for these borrowers (private lending = excessive fees and rates). Ugh, I hate it.

You still might get the best rate you can when you look online. Maybe. However don’t be surprised and annoyed if you don’t! And remember that sometimes the best rate may not be the best product for you so definitely take this into account when deciding your options.

 

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