Why the Best Mortgage Deals Don’t Always Have the Lowest Interest Rates
Why the Best Mortgage Deals Don’t Always Have the Lowest Interest Rates
When something seems too good to be true, it’s often time to trust your instincts and move on. It’s a cliché to be mindful of, especially if you’re on a mission to find the right mortgage for your dream home.
Lenders will advertise offers that scream out ultra-low interest rates in an effort to reel you in. Look more closely and you could find that what you’ve bagged is no bargain. Read on for the tips you need to weed out the good deals from the bad.
Everyone Likes a Good Deal, Right?
Canadians have a reputation for loving discounts and reward programs. The results of a study by banking giant HSBC may therefore come as a surprise. It carried out a poll of current and prospective homeowners in 10 countries.
It found that Canadians were some of the least likely to have done any research for the best mortgage rate. Only half of the respondents in Canada said they had shopped around. Not taking the time to read the small print and check out the deals is a false economy.
Market trends, demand, inflation levels, and the policy of the Bank of Canada can all affect interest rates.
Down Payments and Loan Terms
There are a number of other factors that influence the interest rate a lender may offer you. These are:
● The price of your new home and the amount of the loan
● The size of your down payment
● The loan term
● The type of interest rate (eg: fixed) and the category of loan
● Your credit score
Your employment status can also influence the type and range of deals lenders offer. For the self-employed, securing their preferred loan can be more challenging than for those in secure full-time employment.
Lenders always want proof of reliable income to mitigate any risk of payment defaults.
As a general rule, the higher your down payment and the shorter the loan term, the lower your interest rate will be.
Hidden Fees
Even if you fit all the criteria to get the best interest rate, you still need to be on your guard. The biggest danger lies in hidden fees.
You might find a deal that offers the chance of future payment holidays tempting, for example. Even when agreed, stopping mortgage payments will still mean you are likely to rack up interest on your remaining balance. Future payments may be higher too.
Alternatively, you might embark on a fixed-rate mortgage loan and then repay it early or switch to a different interest rate during the fixed-rate term. If so, you might incur early breakage fees.
Early repayment, document processing and application fees are other charges to watch out for. The best mortgage rate will be the one that saves you the most money after factoring in fees, closing costs, and loan terms.
What’s vital is to fully understand the differences between the interest rate and the annual percentage rate (APR).
Interest Rates vs. APRs
The interest rate, also known as a nominal rate, refers to the cost of borrowing the principal loan amount. Lenders will always express this as a percentage that’s either variable or fixed depending on the mortgage.
The APR on offer is arguably the more effective rate to consider when comparing mortgages. APRs are almost always higher than their sister interest rates because they include other charges such as closing costs, broker fees, and rebates.
Unlike interest rates, the APR is set by individual lenders. They will decide how much they want to charge for additional fees on top of the interest rate.
Not all lenders will charge the same closing fees, for example. That means that even though they might offer the same interest rates, their APRs might be different. On top of that, some lenders may not include all fees in the APR. These could be things like:
● Credit reporting
● Appraisal and inspection fees
Take Your Time to Find the Right Deal
We understand that your time is precious. That’s why we’ve done a lot of the work for you when it comes to finding the best mortgage deals around.
Contact us now and discover more about the mortgage services we offer and how we can help you on your home buying journey.