The thought of applying for a mortgage is enough to make anyone nervous, whether it’s your first or your fifth. And when that time comes, most homebuyers walk through the door of their broker’s office with one question: ‘What’s the lowest rate?’ It’s true, the interest rate on your mortgage does have a huge impact on the final total you will end up paying on your mortgage. But it’s so important to look at factors other than the interest rate to make sure that you really are getting the lowest price on your mortgage. Because after some research, you’ll quickly find that the lowest deal does not always mean the lowest rate. Here are just some of the factors you may not have considered, that can quickly turn a decent-looking rate into one pricey mortgage.
Mortgage Restrictions
Always, always ask your broker about any restrictions that will be placed on your mortgage; you may not know about them until it’s too late unless you do. Mortgage restrictions can include things such as:
- Ending the mortgage before the final term date
- Fees for reinvesting
- Refinancing unavailable for the first year
- 15, 18, or 25 year amortization minimums
Unattractive Conversion Rates
Conversion rates are the fee you will pay if you want to change the terms of your mortgage. Conversion rates are generally based on:
- A fixed amount that is below the current posted rate
- Arate that is negotiated at the time you change the terms
- The lender’s “broker’s rate,” which is generally the lowest
Mortgage Penalties
Your lender wants you to pay off your mortgage as soon as possible, right? Well, not really. The longer you have your mortgage, the longer they have to gain from you paying that mortgage. When you pay it off early, the lender loses out on future interest, and future profit. Your mortgage penalty will be based on how much you are pre-paying and the difference in the original interest rate, and the rate on the day you pre-pay the mortgage.
Getting a low interest rate is definitely a great way to make sure that you don’t pay too much on your mortgage; and a mortgage broker will always look for a low interest rate that will serve you best. But you should also speak to them about the other factors that will affect the total amount of your mortgage, and the total amount you pay on it, before signing off on the dotted line. Asking a few questions could save you thousands of dollars in the years to come.
