So, you are ready to buy a new home! You have found the perfect property that checks off all your boxes, and most importantly it is the right price. The next step is to get yourself a mortgage set up, but a mortgage is much more than just a loan.
Amongst the stress of being approved for a mortgage, it is easy to lose your view of the big picture and just choose the cheapest rate at the time. Sometimes the best mortgage for a homeowner at the present may not be the best mortgage for them in the future. One of the key things that homeowners focus on is the interest rate for the mortgage, and it is deemed a success if the homeowner gets the lowest rate they possibly can. Below are two scenarios where having the lowest interest rate may not be the best situation for the homeowner, and these two scenarios will help show how a mortgage is more than just a rate.
Bill is a regular middle class person with good credit, and he has finally saved up for a down payment on his new home. Between two roughly equal mortgage rate offers, he chooses to go with his bank. A few years later, Bill is separating from his spouse and needs to pay out his mortgage. Due to this, he incurs a penalty that would have been much lower had he chosen the other option as penalties are calculated differently depending on the lender. Another way that could have saved Bill money is if he asked proper questions before signing the contract to make sure he was fully understanding the agreement.
Sue is a self employed tradesperson and has worked hard to save 15% of the purchase price for the downpayment on her new home. Because she is self employed, she has some trouble verifying her income. She has two options here: she can choose a mainstream lender who will use a mortgage insurer, or she can use a lender who will not use an insurer but may charge more money. If Sue is taking out a mortgage of $250,000, the first option will cost 2.79% for a 2 year term plus the insurance fee of 3.75%. The second lender option will cost Sue 4.89% over a 2 year term plus a lender fee of 1%. The difference between the two options is $7,235, and although Sue has to pay more money monthly, she will owe $3000.57 less at the end of the term.
It is very important to make sure that you are making the best decision for your future when it comes to your mortgage. Even though a higher rate may seem to cost more money at the start, it can actually save you lots of money. For more information on how to properly navigate choosing a mortgage in the GTA, call me today.