Low rate mortgages may come with high penalties and restrictions that can end up costing you thousands more later on. We go over the features that really matter when shopping for a mortgage.
When shopping for a new car, would you buy the lowest priced car on the lot, while ignoring all other relevant features? Of course not! If you did that, you’d probably end up driving away in a 10 year old used Volkswagen Beetle for your family of six.
Does this story seem implausible? Well, we have this exact scenario playing out when it comes to mortgages every single day.
While the mortgage rate certainly matters, there seems to be far too much focus on it. Just like when you’re in the market for a car, you want to consider the features of the mortgage before signing up, so you don’t end up with a mortgage that’s a lemon.
With that in mind, let’s look at the top three reasons why lowest rates are not always the best.
1. Penalties
Mortgage penalties are not all the same. Mortgage penalties with certain lenders can end up costing you thousands more than others.
Sure, it’s nice to save 0.05% off the rate, but if the lower rate comes with a significantly higher penalty and there’s a high likelihood that you’re going to break your mortgage, is it still worth it? Probably not.
Even if you don’t plan to break your mortgage, five years is a long time. A lot can happen. Wouldn’t you rather have a flexible mortgage, instead of one that traps you?
2. Prepayments
Let’s say you’re in the habit of making lump sum payments against your mortgage whenever you have extra money (tax refunds, bonus at work, overtime, etc.).
Some lenders let you make lump sum payments throughout the year, while others restrict you to once a year. Some let you prepay 20% of your original mortgage, while others restrict you to 10% or less.
Even if you got a slightly lower rate, if you’re restricted by how much extra money you can put against your mortgage, it can end up costing you a lot more long-term.
3. Restrictions
Do you plan to do home renovations in the future and you’re planning to borrow equity from your home to finance them? Did you know that some mortgages don’t allow you to do that?
Limited feature mortgages restrict what you can do during your mortgage term. You may only be able to refinance with the same lender. You’re forced to take whatever rate, terms and conditions they offer you. Some lenders don’t let you refinance at all.
By asking the right questions, a good mortgage professional will only suggest mortgage options that make sense for you in the long run.
Good advice trumps the lowest rate
It’s so important to properly understand the full terms of a mortgage.
When you work with independent mortgage brokers, we aren’t tied to any one lender. We’ll present you with the mortgage options best suited to you.
Your mortgage is most likely the biggest financial decision of your lifetime. Wouldn’t you rather have a trusted mortgage expert in your corner looking out for your best interests, rather than signing up for a low mortgage rate that’s going to end up costing you a lot more later on? I know I would.
