Unfortunately not all Banks and not all Mortgages are created equally, and basing your decision on Mortgage Rates alone is dangerous to your financial wellbeing. As a mortgage broker and an industry insider I am about to expose 2 of the banks dirty little secrets by showing you the little differences between Banks and their mortgages that could save you thousands of dollars in interest fees and penalties.
The first and potentially most impactful secret is that not all banks calculate their penalties the same way, and the difference between the banks with the lowest penalty cost and the highest penalty cost is dramatic.
For example, If you had a new five year fixed mortgage today with a balance of $250,000.00 at TDCT, RBC, Scotiabank, or Bank of Montreal with a current rate of 3.49%, and three years from now rates dropped by 15% and you needed to break your mortgage you could expect to pay a penalty of almost $15,000.00*. However if your in the know, lenders like First National LLP, Merix, and other large yet relatively unknown mortgage companies your penalty could be as low as $4,000.
Thats and $11,000 difference on just a $250,000 mortgage!
Now I understand that no one plans to break their mortgage contract, but the reality is that it happens, some research indicates that over 60% of mortgages are broken within the first 38 months, with those odds and the potentially high cost of breaking a mortgage, I say considering your mortgage penalty is a must.
The second dirty little secret is the way the financial institution registers your mortgage at the land titles office. The first way is a standard mortgage charge which is the traditional way that a mortgage is registered, it provides some basic features like its portable, meaning that once a bank registers a mortgage, any bank can use the same registration, this is extremely helpful at renewal time, because most banks will take over another banks mortgage at no cost, allowing you to shop around very easily. This also keeps your current bank honest as they know that you can be easily swayed with a better offer.
However now banks like TDCT, Scotiabank and ING are using Collateral Mortgage charges. A Collateral Mortgage charge is very similar to a standard mortgage with the exception of two major differences:
Collateral Mortgages are usually registered at the value of your home (sometimes higher) they do this because its readvanceable a funny word the banks use to say that once you pay down your mortgage you can borrow it again without having to pay any legal fees, the issue experts have with this feature is that because the Banks registers your mortgage at such a high value, you will liking never be able to qualify for any subsequent mortgages (2nd Mortgage). Forcing you to meet their requirements, or completely move your mortgage somewhere else. For many Canadians this may not sound like something to be concern about but reality is that tough financial times are very rarely planned for and are usually a result of unexpected job loss, medical emergency or other significant events that we are unable to predict. The true issue is should the result of one of these unexpected events be the costs associated with getting a new mortgage, because in most cases even with the higher rates associated with a 2nd mortgage you you can still save thousands of dollars in interest and erroneous fees by using one.
The other problem is the way a collateral mortgage registers its mortgage terms, a collateral mortgage essentially prevents banks from transferring them or taking them over. This has a dramatic impact at time of your mortgage renewal, because most banks are unwilling to pay the additional fees associated with removing a collateral mortgage from title, and would require you to pay these fees yourself. This adds another element to shopping for a new mortgage because these additional cost will have to be considered when comparing a lower rate at a different bank.
In today’s fast-paced world it seems that the only real thing that remains consistent is the fact that everything changes, this should remind us that when we start making decisions today that we have the potential to affect us financially in the future that all factors should be considered. Flexibility, now more than ever is extremely important! So although I am talking about things that may happen, or consequences as a result of the situation that may occur, I feel that it’s more important to consider them and be prepared for them.
With mortgage rates being so close from bank to bank, it becomes much easier to select your next bank based more on its features and policies, than just the rate alone. And as a mortgage professional it’s my job educate you on the differences between the bank’s because trying to figure this out on your own would be extremely time consuming and redundant, as I have already done all of the research for you.
The ClearHome Mortgage Advantage
Remember, not all mortgage companies are created equally. At ClearHome we focus on you as a person, not just a borrower and pledge that the advice you receive is second to none. Our offices are located in Winnipeg, Manitoba and we offer services for all Canadian homeowners.
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