With the emergence of the Internet over the past couple of decades, more and more consumers are playing an active role in “rate shopping” for their mortgage. Unfortunately, the “best rate” doesn’t always equal the best mortgage – there’s usually a big difference between the lowest rate and the lowest total cost of borrowing. In fact, the interest rate is just one of the many factors that determines your total cost of borrowing.
There are numerous things that can turn a low rate into a high cost of borrowing:
- Poor term selection (eg. in most cases, getting 3.39% on a five-year term will be better than getting 3.19% on a one-year term)
- Unanticipated fees (for breaking your mortgage early, reinvestment fees, administrative fees to switch or port your mortgage, 100% clawback of cash-back if the mortgage is broken before maturity, etc)
- Mortgage restrictions (can’t refinance within x months, pre-payment restrictions, can’t break mortgage in first x years, etc)
- Numerous/high mortgage penalties (last week we talked about IRD penalties, penalties for pre-payments, penalties for early termination of your mortgage, etc)
Depending on your situation, the lowest rate may, in fact, be the best option for you. But a lot of the time, the lowest rate can end up costing a lot more if you don’t know all the fees & penalties that could come along with that rate. One of the main benefits of using a mortgage broker is that we know the products offered by each lender – the ups and downs of the rates and options for each mortgage – so that we can help you pick the best mortgage that fits your current situation and needs. Sometimes, taking a slightly higher rate will save you tens of thousands of dollars, whereas a slightly lower rate could cost you tens of thousands of dollars.
I’m not saying don’t shop around on the Internet (I’m an Internet-junkie if there ever was one!), but make sure to ask the (usually FREE!) advice of a mortgage broker before deciding which rate, term and mortgage is best for you.
