Is it really all about rate?

THINK OUTSIDE THE BOX:  Although rate is definitely a top priority, the features of a mortgage can play a very important role.

It’s important to understand the features of a mortgage to make sure it fits with your goals.  Here are examples of six mortgage features that should be top of mind:

Blend and Extend – Many lenders offer this feature, which is simply a blend of the existing mortgage rate with today’s current rate.  It may also mean extending your current maturity date as well.  Depending on your situation, you may want the flexibility this feature offers.  If your current lender doesn’t allow a change in the maturity date, then you are locked in to the remaining time left on the current term.  While that is not the end of the world in of itself, in a rising rate environment this can be extremely inconvenient.  If you are moving up, and buying at your maximum loan-to-value, you may not want just a 1 or 2 year term.

Early Payout Penalty Calculation – Different lenders calculate their IRD (interest rate differential) penalties differently.  The IRD is a compensation charge that may apply if you pay off your mortgage prior to the maturity date, or pay the mortgage principal down beyond the amount of your prepayment privileges.  It’s important to understand how your early payout penalty would be calculated.  Some chartered banks are known for their extremely large IRD penalties.  Most closed fixed-rate mortgages have a prepayment penalty that is the higher of 3 months interest or the IRD, while variable-rate mortgage do not have IRD penalties (just the 3 month interest charge).  If you don’t know for sure that you will keep the mortgage for the entire term, you need to ensure you understand the fine print in your mortgage documents, especially as it pertains to the payout penalty.

Mortgage Registration – Is the mortgage registered as a non-standard charge, either a running account or a collateral mortgage charge?  If so, then it becomes harder to switch this mortgage to another lender to take advantage of lower rates and perhaps better terms.  Consider this scenario:  If the lending institution knows you will have to incur $1,000 or more in possible costs, as well as put in the time and effort to complete a refinance with another lender, then there is less incentive to offer you best rates at renewal time when a small rate reduction might be enough to keep your business.

Pre-Payment Privileges – Is the lender offering 10/10, 15/15, or 20/20, or something different?  That means allowing prepayment of perhaps 10, 15 or 20% annually on the original amount borrowed, or the outstanding balance of the mortgage?  It also means allowing you to increase your regular payments by up to 10, 15 or 20% or maybe not at all?  Also, can these lump sum payments be made during the year or only at the mortgage anniversary date annually?  How easy is it to make lump sum payments with the lender?  Do you have to go in to the branch, call a 1-800 number, or can you simply go online an do it.  These are important ‘features’ to consider.

Porting Features – This feature, which allows you to keep your existing mortgage and move it to a new property without penalty (e.g. if the existing mortgaged home is being sold), can vary from lender to lender.  This is an important feature if you think you might move before the mortgage renewal date.

Online Access – All of the chartered banks offer online access as do a number of  ‘non’ chartered bank lenders.  Generally, online access allows you to see, for example, your mortgage details, current balance, original amount borrowed, may allow you to make additional payments, lump sum payments, or make a payment increase.  This can be a welcomed time-saving feature for consumers.

In summary, yes, although it is important, there is definitely more to consider in obtaining a mortgage than just the rate.  Please call me anytime to discuss your options.  I would very much appreciate the opportunity to assist you with any of your mortgage needs.

Garth Lyon      Sr. Mortgage Professional      April 20, 2016

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