Why The Best Mortgage Rate May Not Always Be The Lowest

Mortgage Rates London Ontario

Just like when looking for a car, it isn’t always the best option to choose the cheapest one you find, it is the one that is best suited for you and your lifestyle. So just like when looking at mortgages, choosing the one with the lowest interest rates might not be the best option for you, as it could end up costing you more.

How can it cost me more?

One of the reasons why some of the interest rates are low, is that they come with restrictions and sometimes aren’t that flexible. While lenders can entice you with low fixed rates, they might be able to get that money back further down the road with penalties and fines if you were to adjust or change your mortgage. This is not an uncommon practice, similarly insurance companies do this by offering us less for insurance but charge us a higher deductible if something were to happen with our car.

Just like interest rates with additional features and flexibility, these can cost a bit more than a fixed, low interest rate. By paying a little bit extra in interest rates, you can have a little bit of breathing room when it comes to an unexpected change in events and you may need to change your mortgage.

Some Considerations

Here are some questions you should ask yourself when you consider locking in your next mortgage:

  1. What if I need to refinance due to an unexpected job loss, break-up, unexpected home repairs, etc.?
  2.  Can I put extra money down to pay off the mortgage? If so, how much and when?
  3. Are my closing dates flexible? What happens if they aren’t?
  4. What if I move and sell my house before the mortgage is up?

So, what is the best rate?

Life is unpredictable! We may not be able to foresee our future, especially when signing our first mortgage. A no-frills, low-interest mortgage that can end up penalizing you for adjusting or breaking your mortgage can be devastating! The last thing you want is to be penalized a substantial amount on fees and penalties in unexpected charges.

We’ll sit down with you and go over your present situation, as well as discuss your future needs. We can go over all the options available and choose the best options that will suit your needs.


A & B Lenders and Private Mortgages

A & B Lenders

Andrew Young from Community Mortgage Movement here. What’s the deal with A & B Lenders and Private Mortgages?

Today we are going to be going over what is an A Lender, B Lender and a Private Mortgage. But first here is a little more info on what mortgage agents and mortgage brokers do. I myself am a mortgage broker and can not only deliver a lot of different options and a lot of choices because we deal with different types of lenders. So, what’s the deal with these lenders?

A Lenders:

Also known as traditional lenders, refer to banks or credit unions that traditionally cater to customers with good credit scores and have a reliable income – These are considered “A” Clientele.

Institutions servicing an “A” clientele include Canada’s major banks — e.g., BMO, CIBC, National Bank of Canada, Scotiabank, RBC, and TD. These banks are subject to federal regulation, which means that you’ll be stress tested when you apply for a mortgage.

B Lenders:
These institutions offer a lower barrier of entry to qualifying for their products but can offset that with higher interest rates. In short, they cater to people who may not qualify for say, a mortgage or a credit card at one of Canada’s six big banks, because they lack either a strong credit history, or a guaranteed income (recent immigrants, or the self employed, for instance).

Private Lenders:

These are the lenders that can help fill the gaps between the A & B lenders. These lenders are not just for people in a really bad financial situation, it could also be for people who are looking to build something that is a little more unique, as the banks might not understand or the banks don’t have the hunger for.

What Is A Rate Hold?

Rate Hold Image

You have most likely heard lenders and borrowers talking about rate holds and rate locks, so what exactly does this term mean?


What is a rate hold?


A rate hold protects the borrower from rate fluctuations for the duration of the hold period. This guarantees the lender will offer the borrower a specific interest rate. Once this rate has been locked in, the lender will guarantee that rate for a certain period of time. A typical rate lock period could be 60, 90 or 120 days. This also means that if the market rate rises after the rate is held and the borrower will still receive the lower rate.


What happens if the rates go down during the rate hold time?

Not a problem! If the rates go down during the rate hold period we will automatically have you pre-approved at the new lower rate. The interest on your mortgage rate will reflect the lowest rate reached within the duration of the rate hold period. This is why getting pre-approved for your mortgage well in advance of purchasing a property is a good idea.


When can a rate be held?


Buyers must typically wait until a seller has accepted their offer for the purchase for a specific property. Other information is also needed before the rate can be locked, as the rate offered to an individual borrower depends on a variety of things including: borrower’s credit score, the loan-to-value ratio, the property type and locality.


How much does a rate hold cost?


Rate holds are always free for clients! This is true, as the rate lock is not associated with any type of fee.


What happens if a rate lock expires before closing?

Lenders are not able to extend a rate lock after a period of 120 days. Therefore once the time has lapsed, they will then have to pay the current rates. One of the big things is to make sure you have firm knowledge of when you’ll be able to close.