When I meet with my clients, I explain that I believe my role is to get them the mortgage that fits their goals and plans, while saving them the most amount of money over the lifetime of their mortgage. This takes into consideration what you might be offered at renewal time by the lender or should you terminate the mortgage during the term or what will you pay for an early payout penalty.
In the last few weeks the feds have increased the posted rates (aka, contract rate) at the big 5 banks, was 4.54% and now at 4.74%. Why does this matter to you??…qualifying and early payout penalties!
Qualifying……. If you want a variable rate mortgage or a term shorter than 5 years, we have to use the “posted or contract rate” (4.74%) to qualify you for the mortgage. This recent bank rate increase means fewer clients will have the option of choosing a variable rate or shorter term mortgage. The 5 year fixed rate becomes their only option.
Early payout penalty……With the 5 year fixed rate seriously low at 2.44% for an insured mortgage, that might not seem like a bad deal. Unless you have to break or terminate that big bank mortgage before the end of the term. The big banks calculate the early payout penalty by adding back the discount you got when you selected the mortgage term with them. It is as if you are paying them the posted rate, when it comes time to calculate the early pay out penalty. (e.g. Posted rate 4.74% – your rate 2.59% = your discount of 2.15%). With this new increase in the posted rate, it means your penalty will be higher should you break or terminate your mortgage before the maturity date.
In an economy where interest rates are decreasing, by increasing the posted rate the big banks have found another way to make money off of you, the borrower, that is not in your best interest!
When you are mortgage shopping for a purchase, refinance or a renewal, please talk to an experienced and knowledgeable Dominion Lending Centres mortgage professional. When life happens and the penalty is $3,500 vs. $16,000 you will be happy you followed our advice.
Thank you to my DLC colleague Karen Boies for this great article.