Column: Is the best mortgage rate the best deal?

Kelowna mortgage specialists talk about the different rates

A competitive rate is most important however the terms of the mortgage should also influence the suitability of a mortgage for you. The terms of your mortgage should offer the utmost in options as well as protection should an unforeseeable occur during the term. We are all looking for the best rate but opting for the mortgage with the best rate and not being aware of the terms could lead to issues later on.

Prepayment privileges (the amount you are allowed to prepay on your mortgage without penalty) vary from 10 to 20 per cent depending on the lender. If you have a mortgage of $300,000 the difference in a prepayment allowance can be huge. The lender with the 10 per cent option will only allow a penalty free prepayment of $30,000 while the 20 per cent prepayment option allows you to pay up to $60,000 without penalty. The savings there are significant. As well, the ability to double your payment or increase payments by 20 per cent rather than 10 per cent clearly makes a difference. Another option to consider is the ability for missed payment flexibility. Although we do not want to find ourselves in this situation, it is peace of mind to know the option is there.

The ability to port a mortgage is equally important. If you chose a mortgage that is portable if you were to sell your home and purchase another prior to your term being fulfilled, you can port your mortgage to the new home without paying a penalty. The lender will treat the new property as a new application. You must qualify for the new mortgage and the property must meet the lender’s requirements but your existing term will remain and no penalty will be levied. If the mortgage on the new property is less than your existing mortgage you will only pay a penalty on the portion of the mortgage you are reducing it by. As an example if your mortgage was $300,000 and you now only require a mortgage of $250,000 you would be assessed a penalty only on the difference of $50,000.

If your mortgage is to increase all remains the same on the existing and the new money only is charged at current interest rates. The ability to port a mortgage is a huge benefit.

Another option to look for is if your mortgage is assumable. An assumable mortgage means the mortgage can be transferred to another borrower. It allows a purchaser to, upon qualification, take on your mortgage terms and payments as part of the sale of your home. In this situation there would be no interest penalty assessed to you.

If you were to pay your mortgage out prior to your term maturing ask what the lenders posted rate is and how it would affect your prepayment penalty. Posted rates can vary significantly between lenders and a higher posted rate could result in a huge Interest Rate Differential (IRD) penalty should you have to pay the mortgage out prior to the term maturing.

We all tend to be attracted to the lowest mortgage rates and have to remember the terms are also a very important factor to be considered. A mortgage professional will secure the best rate with terms that you clearly understand offer the best option for you.

Of Prime Interest is a collaboration of mortgage professionals: Trish Balaberde (250-470-8324), trishb@creativemortgage.ca; Darwyn Sloat (250-718-4117), dsloat@creativemortgage.ca; Christine Hawkins (250-826-2001), christine@creativemortgage.ca.

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