What is hiding in your fine print?
I would like to caution you to beware of is lender fees and asset transfer clauses. Some lenders offer fantastic, too good to be true interest rates. If you are only looking at interest rate you would most definitely select this option for your next mortgage. However when you look at the details, the lender is recouping their loss of mortgage interest in other areas of the contract.
Some ways they have to recoup their costs may be:
• Lender Fees: We have seen mortgages where the mortgagee is paying a 1% or 2% fee to the lender for setting up the mortgage. A lender fee is common practice for private mortgages however this practice is fairly atypical for a standard mortgage. If your contract contains a fee in order to get a lower interest rate you need to do the math so see if the bottom line actually makes sense.
• Hidden Clauses: We have also seen deals where the mortgagee is required to transfer an amount of assets to the lender (eg. open a bank account, transfer RRSP or other investments) in order to qualify for a particular rate. Again, you need to look at the costs of closing accounts and transferring to ensure that this option is as good as it is advertised to be.
• Prepayment Penalty Calculations: We would also like you to review the blogs on discounted rates and pre-payment penalties as this is another area where a mortgage can be extremely costly for client.
It is always important to evaluate the mortgage product as a whole not just the interest rate. There can be a lot in the rest of that contract that can cost you money if you aren’t evaluating all the details. A mortgage broker helps you navigate the entire 16 page contract, not just the line that has the interest rate on it.