Sorting by

×

5 Reasons Why Your Bank Rate Isn’t Better

by | Sep 28, 2016

5 Reasons Why Your Bank Rate Isn’t Better

I recently had a client ask me what difference I could provide given that his bank’s website was offering the same interest rate I had quoted him the day before. Before responding to him, I went on his bank’s website to check it out for myself.

There are times when a client needs the best rate and lowest possible monthly payments, and this was definitely the case for this client. He was lucky enough to be able to afford a 20% down payment if he needed to, making it a conventional mortgage. Seeing as the bank was offering the same rate, he asked why bother if he could get away with putting only 15% down?

After checking out the bank’s website, I called him back and gave him these reasons why the bank rate was in fact NOT the same as the one that I had quoted for him.

Although there were MANY reasons that I provided, I want to touch on the top 5 that were the most important given his individual circumstances. Scenario is based on a purchase price of $430,000.

1) The bank rate was for an insured mortgage (meaning less than 20% down) which would require he pay mortgage default insurance of $6,579.00. This would increase his mortgage amount and be to the benefit of the lender. Of course, he would also be paying more interest as his mortgage balance would be higher. The rate I quoted him was for a conventional mortgage, so no mortgage insurance and no mortgage insurance rules! Also as a Dominion Lending Centres mortgage broker, I could most likely offer him a lower interest rate for an insured mortgage if he chose to go that way providing him more savings.

2) Just as important for him, an insured mortgage can only be amortized up to 25 years, while a conventional mortgage can be amortized up to 30 years (and in some cases 35 years). So when calculating his monthly cost, he would in fact be paying over $300 more per month if he was to put only 15% down.

3) At the end of the 5 year term, he will have paid $2,467.48 more in interest and $18,562.28 more in monthly payments with the bank rate on his insured mortgage. For this particular client, keeping more money in his pocket each month is crucial. To further reduce his interest payments and amortization period, I would encourage a bi-weekly accelerated payment.

4) As is all too common, if he chose to break his mortgage, say after 3 years, his bank’s penalty would be somewhere around the $6,400 price tag. With my chosen lender, he would pay approximately $2,000. This calculation is based on a 5 yr fixed term of 2.44% and a remaining mortgage balance of $319,737.95. ( With a purchase price of $430,000 minus a 20% down-payment of $86,000, the starting mortgage amount would have been $344,000.)

5) Should the need arise, my client would have a likelier chance of being able to refinance his mortgage if he required the extra funds because you can only refinance up to 80% Loan To Value of the home.

Finally, and perhaps one of the most important benefits, is the expertise, advice and ongoing service to him that a broker such as myself can offer, potentially saving him thousands over the life of his mortgage. His bank rate will not give him that!

So, for any client, I would suggest looking beyond rate and speaking to a DLC mortgage professional to get a clearer understanding of how your banks rate may not in fact be the same before jumping to any conclusions!

Thank you to my DLC Jordan Thomson for this article.

Related Posts
Choosing a Mortgage That is Right for You

Choosing a Mortgage That is Right for You

Choosing a Mortgage That is Right for You When you buy a home, you may only be able to pay for part of the purchase price. The amount you pay is a down payment. To cover the remaining costs of the home purchase, you may need help from a lender. The loan you get from a...

All About Variable Rates

All About Variable Rates

All About Variable Rates Variable rates are based on Prime Rate and the Bank of Canada’s overnight rate, can cause fluctuating or static payments. These payments have cheaper penalty when breaking your mortgage. The banks generally change their prime rates a few days...

Increase of Prime Rate Mortgages – What Does This Mean?

Increase of Prime Rate Mortgages – What Does This Mean?

Increase of Prime Rates – What Does This Mean? With the increase of prime rates over the last few months, there’s a lot in question. Many people are questioning if they should have a fixed rate mortgage or a variable rate mortgage. There are many factors to consider...