The Three P's of Mortgage Shopping: Looking Beyond Interest Rates

November 25, 2024
When shopping for a mortgage, most people focus solely on getting the lowest interest rate possible. While that's certainly important, it's not the only factor that should influence your decision. Today, let's explore what I call "The Three Very Important P's" of mortgage shopping that could save you thousands of dollars in the long run.

1. Prepayment Privileges: Your Fast Track to Building Equity

In today's rising interest rate environment, a larger portion of your mortgage payments goes toward interest rather than principal. That's why prepayment privileges are more crucial than ever. These privileges allow you to:

  • Make additional lump-sum payments
  • Increase your regular monthly payments
  • Pay down your principal faster


Pro Tip: Consider looking beyond traditional banks. Non-bank lenders often combine lower rates with more generous prepayment options, giving you the best of both worlds.



2. Penalties: Understanding the Cost of Breaking Your Mortgage

Life is unpredictable. Whether it's a job change, divorce, or an unexpected move, circumstances might force you to break your mortgage early. Understanding potential penalties isn't just fine print – it's essential financial planning.


Here's what you need to know about mortgage penalties in Canada:


For Variable-Rate Mortgages:

  • Generally three months' interest
  • Typically more straightforward and less costly


For Fixed-Rate Mortgages:

  • More complex calculation
  • You pay the greater of:
  • Three months' interest, OR
  • Interest Rate Differential (IRD)


Important Warning: Big banks often calculate fixed-rate penalties using their posted rates, which are substantially higher than contract rates. Always ask your lender how they calculate the IRD – it could save you thousands!



3. Portability: Your Safety Net When Moving

Don't want to worry about penalties when moving? A portable mortgage might be your solution. Portability allows you to:

  • Transfer your existing mortgage to your new home
  • Maintain your current interest rate
  • Combine with additional funds if needed
  • Avoid costly penalty fees



Key Takeaways

While a low interest rate is important, don't let it blind you to these crucial features. The most attractive rate might come with restrictions that could cost you more in the long run. Before signing any mortgage agreement, make sure you:

  • Review the prepayment options
  • Understand how penalties are calculated
  • Consider whether portability is important for your situation


Remember, the right mortgage isn't just about the rate – it's about finding terms that align with your long-term financial goals and life plans.


This article is for informational purposes only and should not be considered financial advice. Always consult with a qualified mortgage professional for advice specific to your situation.

Two women are sitting in chairs in a living room talking to each other.

Traditional vs Non-Traditional Down Payments: A Complete Guide for Homebuyers

November 25, 2024
Explore traditional and non-traditional down payment options for homebuyers in 2024. Learn about minimum requirements, insurance implications, and various funding sources.
A woman is sitting on a couch using a laptop computer.

Bridge Loans: Your Path to Your Dream Home

November 25, 2024
Picture this: You've just found your perfect home, but your current house hasn't sold yet. Or maybe you want to renovate your new property before moving in. In either case, a bridge loan might be exactly what you need to make your dream home a reality.