Sami El-Farram, Mortgage Broker/Owner with Total Mortgage Source 360 (@TMS360) shares his thoughts on the 2.99% mortgage.
So I jumped into my car last night after the Sabres 3-2 overtime victory over Montreal (2 points out of the playoffs!!!) to hear one of the big five banks is up to their old tricks again… a historic 5-year fixed rate of 2.99% is back again in an attempt to shore up their dwindling market share. The rest of the lending industry is working with an average 3.19% which was, and in fact still is the lowest rate ever historically offered when comparing apples to apples. Every news outlet and commercial from here to Victoria had it as “breaking news” and front page fodder. As you would expect, this is creating a lot of fuss.
The question is, what is all the fuss about? The devil is in the details. The two mortgage products are simply not the same. “Deeply discounted” product is extremely restrictive, available for a very short time, eliminates the borrower’s ability to get out of the mortgage for the full 5 years, forces a 25-year amortization, drastically reduces pre-payment privileges, eliminates double up or miss a payment options, all limiting increased equity, allows refinances only with the incumbent lender and last but not least, eliminates the borrower’s bargaining power to negotiate at refinance or renewal time. This is basically the stripped down economy car of mortgage offerings with a catch… The car can only be serviced at the dealer. And when it comes time to sell, it can only be sold back to the dealer at a price they dictate. Am I saying this is all bad? Well no, I guess. If one likes to drive the most basic of cars with hands shackled to the wheel while hurtling toward a cliff with no way to avoid the inevitable plunge…then I guess it’s great.
I for one am not advising borrowers to move to this type of loan for a mere 3 tenths of 1%, regardless of lender. In my opinion, flexibility is power. The power to manage debt is far greater than the power of a low rate with heavy restrictions. Savvy borrowers work toward debt reduction actively managing their mortgages by taking advantage of the perks and flexibility offered through sound mortgage structure not restrictive discounting. The bottom line is that actively managing a mortgage with plentiful pre payment opportunities and refinances calculated with discounted rates rather than posted rates can drive the cost of borrowing way down while also increasing the borrower’s equity in the property. Not to mention most Canadian’s make changes to their mortgage every 3 to 4 years… Why restrict your options?
The bottom line is, when an already deeply discounted item is put on sale…. check the code date because it could get smelly very quickly…
Keep an eye out for future posts and comments from Sami on our ever-changing mortgage market.
Thank-you for visiting.