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Four Facts Your Bank Won’t Tell You About Your Mortgage

June 9, 2017

For decades, Canadians have simply relied upon their friendly neighbourhood banker to provide them with what they need for their banking, investment and mortgage needs.


But there are a number of facts your bank is not telling you about your mortgage.


At the end of the day, your bank’s primary interest, pardon the pun, is to put more money in their pockets’ not yours.

Here are four Facts Your Bank Won’t Tell You…

Fixed Vs. Variable


The five-year fixed rate mortgage is by far the most popular mortgage rate product – and with good reason, the security of knowing what your interest rate will be for the next 60 months is very appealing to Canadian homeowners. No one wants worry about their monthly obligations skyrocketing if rates were to start moving up for whatever reason. But what your bank won’t tell you are the benefits of the variable rate mortgage.


Research has shown that the variable rate mortgage historically beats the fixed rate mortgage in terms of interest paid. Professor Milevsky’s research has shown that 9 times out of 10, a homeowner who takes a variable rate mortgage will pay less in interest than the homeowner who takes a fixed rate mortgage product. While past returns are not a guarantee of future success, current economic conditions dictate that the Bank of Canada intends to keep interest rates lower for a while longer.


Not only are variable rate products typically easier on the wallet; variable rate mortgages also come with friendlier pre-payment penalties. Variable rate mortgages come with a three-month interest penalty in the case that you need to break the mortgage early – breaking a fixed rate mortgage is more punishing.


Your Options Upon Mortgage Renewal


MonsterMortgage.ca has discussed in length the perils of the ‘special offer’ banks will send to their clients in the mail come renewal time. These special rates are not indicative of the best offers in the market and often times the bank is depending on their clients to not bother looking elsewhere for other options. After all, Canada’s largest banks don’t just stumble into billions in profit. Your renewal period is the perfect time to consult with a mortgage professional and leverage the most out of the options available to you


Even more lackluster than the ‘special offer’ is the collateral charge, or collateralized mortgage. If your mortgage is registered as a collateral charge, your options are quite limited upon renewal time. Requiring legal fees in order to move to another mortgage lender, collateral mortgage charges serve to keep your mortgage in one spot – taking away your ability to shop the market upon renewal. The collateral charge leaves you with two options – stay with your current bank and accept their renewal terms or spend the money on legal fees in order to break the collateral charge in order to move to another lender.


Posted Rates Can Be Negotiated


Just like the sticker price on a car isn’t the ‘real’ price of the car; the ‘posted rates’ on the bank’s website are not the real rates of the market. If the bank offers you their posted rate, typically 2-3% higher than their real rate, you’ll know that they’ve started with the wrong foot forward. Unfortunately, if you didn’t know any better you might be inclined to accept the first offer put forward to you – content with the thought that your bank has your best interests at heart. Don’t hesitate to ask for a better rate, of which many are available online – which leads to the next point…


The Lowest Rate Isn’t Always The Best Rate

Just like the least expensive pair of shoes aren’t the ones you want to have on your feet all day, the lowest mortgage rate isn’t usually the one you want to have with you for the next few years! After all, the reason the rich are so rich, is often because they manage to spend less money.


Details like penalty clauses, collateral charges and pre-payment privileges can often be the fine-print that may save you a little today, but can cost a lot down the line. An experienced Mortgage Expert will help you to identify any potential pitfalls of enticingly low mortgage rates.


Interested in learning more about what your bank isn’t telling you? Fill out a contact form today and get in touch with MonsterMortgage.ca today!