THE 3 P’sc
Not only do you or your clients want to make sure they are getting the lowest interest rate, there are other important factors to look for with your mortgage.
Let me introduce you to "Three Very Important P's"
As interest rates rise, a bigger chunk of your mortgage payments will go toward interest rather than the principal. That’s why it’s important to get a mortgage that will allow you to make large lump-sum contributions and increase your monthly payments if you decide to pay down your debt faster. Non-bank lenders might both lower rates and offer more generous prepayment privileges than the big banks.
What would happen if you were to break your mortgage? That’s a question every mortgage applicant should ask themselves. People wind up having to break their mortgage for any number of reasons: They move, they get divorced, they lose their jobs. And that can cost them thousands of dollars in mortgage penalties, which is why it’s important to look at the fine print. In Canada, if you have a variable-rate mortgage, the penalty is generally three months’ interest. If you have a fixed rate, however, you could get dinged for much more. That’s because you’ll have to pay the greater of either three months’ interest or something called the interest rate differential (IRD), which is based on current mortgage rates and your remaining mortgage balance. If you’re going for a fixed-rate mortgage, it’s important to ask your lender whether the IRD is calculated based on their discount rate or their considerably higher posted rate. The big banks calculate fixed-rate penalties using their posted rates which have been substantially higher than contract rates.
Speaking of mortgage penalties, one way to avoid them if you move is to have a portable mortgage. This means you can transfer your mortgage to your new home and combine it with a new loan, if necessary.