I love to shop around! Nothing excites me more than getting the perfect deal, but it’s also about the right fit. Ever since my wife and I moved into our home, we spent hours picking out the paint colours and furniture. Honestly, I didn’t care that much, but this is our home, so I understand why my wife wanted to have the right pieces in place.
In hindsight, it’s kind of funny. We spent more time picking furniture than we did our mortgage. That’s not to say we didn’t pay attention. We did our research, compared rates, and ended up choosing the right mortgage for us. But from a time perspective, we easily spent more time picking out a side table compared to “shopping” for a mortgage.
You know what, it’s not funny. It’s kind of scary. 2 in 5 Canadians did not consult with any other service than the one that sold them their mortgage, this according to a new poll from a LowestRates.ca.
Start shopping around!
Your home will most likely be the most expensive purchase in your life, wouldn’t you want to get the best rate possible? I’m not talking about the purchase price; I’m talking about your mortgage!
Of those surveyed, 67% got their mortgage through their bank, 22% through a mortgage broker, while 13% used a credit union. Despite the fact that 60% said they’d like to use a rate comparison site in the future, only 8% did so. This is absolutely ridiculous! In less time than it took me to write the above paragraphs, I found that a mortgage comparison site has a 5-year variable closed mortgage listed at 1.94% while one of the big banks is advertising theirs at 4.49%.
I don’t think anyone is crazy enough to go with the posted rate, but don’t underestimate how much money you can save with a lower rate. On a $400,000 mortgage, a difference of 0.5% would mean a monthly savings of $100. Yearly that’s $1,200, and over the term of a 25-year mortgage, you could save $30,000. That’s not exactly chump change.
It’s not like you’re on your own here. If you’re thinking about purchasing a home, speak to a mortgage broker since they’ll be able to find the best rates and a product that is perfect for you. When I bought my home, I spent less than 30-minutes talking to my broker and I’m fairly confident he saved me tens of thousands of dollars.
Not all things are the same
With mortgages, you need to understand that not every product is the same. A low rate is appealing at first sight, but you need to make sure that the mortgage is right for you. For example, mortgages with low rates tend to have less appealing prepayment options. What that means is that you might not be able to pay down your mortgage faster.
Will you decide on a fixed or variable mortgage? Fixed rate mortgages give you a set rate so you’ll know exactly how much you’ll be paying for the next few years. This peace of mind comes at a cost as fixed rate mortgages tend to have slightly higher rates.
With variable rate mortgages, lenders take the prime rate and add a certain percent. Traditionally, people who have chosen variable rate mortgages have paid less over their term. If rates start to climb back up, you could potentially pay more. With the current low-interest rate environment, it’s hard to say who’ll come up on top in the future.
Finally, you need to understand your payment terms. Making advanced bi-weekly payments will help shave years off your mortgage compared to monthly payments. Taking a 30-year term might be the only way you’ll be able to afford a home, but is that the right choice? Rates could go up, and you might not be able to afford your home anymore.
The final word
The survey found that Canadians spend 7.75 hours planning a vacation, but just 5.75 hours on picking a mortgage. Spending just a little bit of time on your finances could easily save you enough to buy a new car. Imagine what you could save if you spent more time paying attention to your money.