When you need a new pair of shoes, you look for features, comfort and a match to your style and purpose. The least expensive shoe may not fit your foot, or later give you blisters when you try to move. Similarly to buying shoes, mortgages options can be restricting and without the right fit can cause you blisters. You may discover that the lowest rate doesn't provide you with the policies and features you need.
There are a wide range of mortgage products available to consumers today, along with an even wider range of policies, features and corresponding interest rates. Many potential home buyers are rightfully interested in obtaining the best rate, but other features can be just as important. You'll potentially be connected to your mortgage for years, so while rate is important so too are the options and feature that will provide you flexibility.
Example
I recently had an applicant contact me about purchasing a new home and keeping her existing one as a rental. She knew she had the equity in her current home to use as down payment, the income to buy a second home and a tenant interested in renting her current home. So, she eagerly viewed the new home and could envision her life as a landlord with rental income. This would have been possible, but upon closer look at her current mortgage policy, she discovered she was unable to switch or refinance with another lender during the term of her mortgage and if she pre-paid the mortgage entirely (sold) she would incur an extremely high penalty, much more than the typical calculation. She contacted her existing lender to discuss refinancing options, but the interest rates weren't competitive. We discussed some other options but in the end, the limited options available weren't a fit for her goals. She missed her opportunity, was disappointed - but worse, was surprised about the mortgage policy that limited her options.
Importance of Flexibility
Having flexibility to switch to a different lender is important. Especially if your needs change during the term of your mortgage. Often times the most competitive rates are not offered to existing customers upon renewal or refinance. Knowing you can switch gives you negotiating power, freedom to explore other products and the ability to choose where you want to do business. In the event you need to payout your mortgage before maturity, you want to understand the potential penalty.
Service
Have you ever walked into a store that offers low prices but you must serve yourself? Whether it be a cafeteria where you choose your own food, portion or package the products yourself, or pay/rent extra services like use of a cart, etc.?
Sometimes these "serve yourself" business models are fantastic and certainly have their purpose, but I would argue they're only fantastic for basic necessities. For a complex product like a mortgage, professional and available service, flexible options and polices that work for your lifestyle and needs are critical components to your happiness later in homeownership.
No Frills
We sometimes call them a "no frills" mortgage (no relation to the store of the same name). It's a term used to describe the most basic home loan with little flexibility. They may also be known by other terms such as low, smart, basic, advantage, etc. These products have their spot in the marketplace and can be a valid option for some consumers, but it's important to understand the policies, potential limitations and how they aligns with your lifestyle and goals.
Best Advice
My suggestion would be to work with a mortgage professional who will assess your needs to suggest the right product for you and help you explore the important mortgage factors in addition to rate.
Want to talk mortgages? It's my favourite subject!
Sarah Nixon-Miller, Mortgage Broker
Toll-free Across Canada 1-844-315-6609
sarahnm@mortgagegroup.com