Why Getting The Lowest Mortgage Rate Might Not Be The Best Thing


"What's your best mortgage rate?" I hear that all the time from inquiring clients.  Mortgages are like investments (mutual funds): depending on the client's tolerance for risk and 3-5 year financial and family plan, each mortgage product has its pros and cons.  Today's homeowners typically ask for 5 year "best mortgage rate", however very few question why 5 year is the only term they ask for.

This is an actual story that happened 2 weeks ago: a client's mortgage renewal came up and after meeting with them to understand their financial situation and their wishes to pay off the mortgage in 6 years, I recommended a short term (2.5 year) variable product.  They mentioned they wanted to shop around for "best mortgage rate".  They were provided with a mortgage that was 0.1% less than the one I offered. After deciding to move forward with the lower cost mortgage, they discovered the product's minimum amortization is 16 years and has a very restricted increased payment privileges (no pre-payment allowed).  Realizing there is more to mortgages than rates, they came back and moved forward with my recommendations which achieved their desired goal of being mortgage free in 6 years.

It is important when getting a mortgage to consider the following factors over 3 to 5 year span:

  • What will your cash flow situation be?
  • Do you plan to buy a rental property or a cottage?
  • Do you plan to be self employed?
  • When do you want to be mortgage free (specific date)?
  • Any plans to renovate the home?
  • Will you need to access your home equity?
  • Do you have children who will be attending post-secondary schools?
  • Do you plan to invest into RRSPs & other retirement vehicles?

The next time you give me a call to ask: "What's your best rate" and I answer with "I would love to help you, but let me ask a few questions" I hope you understand.