Realtors are awesome at selling and helping clients purchase real estate. Most of them aren’t qualified to talk about the intricacies of mortgages though. I can tell you for damn sure that not all mortgages are created equal, but no one does a better job at explaining why than a professional. And so I am delighted to introduce my first guest blogger, the awesome Ben Sammut from Mortgage Architects, to shed some light on the topic…  🙂

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Not all mortgages are created equal. That’s not to say that one bank’s green leather chairs will render a more peasant-like experience than the “royal” mortgage you could expect from another bank. Instead it comes down to the fine print. In today’s mortgage market, buyers are running around frantically trying to save a few basis points (a one-hundredth of a percent, the difference between 3.09% and 3.08%, usually phrased as “three point oh nine” or “three point oh eight”). But the reality is that the difference between “three point oh nine” and “three point oh eight” typically comes down to a few dollars a month and many people don’t know what they’re forfeiting by going this route.

 

One of the biggest things we always tell our clients to look out for is flexibility. I cannot stress this enough. Do you know how many people actually move houses on their 5-year anniversary? I’d guess probably less 1%. So what does this mean for someone that decides to move on the 6 years and 4 months mark? Or maybe the 3 years and 11 months mark? Well, if you don’t have a flexible mortgage you could be facing large fees, penalties, administrative charges, and any other fancy terms you can think of that all scream a resounding, “you should’ve paid those few extra basis points”.

 

Flexibility (such as prepayment options, portability, and assumability) can afford you the ability to move when the time is right for you and your family as opposed to on a 5-year cycle. It can also act as a safety net should you or your principal income-earner fall on hard times. But let’s not get carried away with worst-case scenarios. Instead, let’s focus on the single biggest benefit of having a flexible product – saving money. Having a flexible product can quite literally save you tens of thousands of dollars in interest.

 

Don’t believe me? Here’s a numerical example.

 

Let’s say you’ve bought a house for $500,000 with $25,000 down:

 

Mortgage Amount: $475,000

Mortgage Details: 2.99% 5-year fixed amortized over 25 years.

Monthly Payment: $2,245.48

 

Over the span of your 5-year term, you will have paid your mortgage down to $405,926.31 and you will still have 20 remaining years of paying off your mortgage.

 

Alternatively, let’s see what a flexible mortgage (with up to 20% prepayment priveleges) would have allowed you to do. Increasing your monthly payments by 20% isn’t always feasible, but why limit yourself?

 

Mortgage Amount: $475,000

Mortgage Details: 2.99% 5-year fixed amortized over 25 years.

Monthly Payment: $2,245.48

Increase in Monthly Payment: 20% – $2,694.58

 

Over the span of your 5-year term, you will have paid your mortgage down to $376,914.27 and you will have 19 years and 7 months remaining to pay off your mortgage. Just like that, you’ve managed to pay down an extra $29,012 on your mortgage, save yourself nearly $45,000 in interest payments, and you still have almost the same amount of time to pay down a now-smaller debt. The math can get complicated but that’s what a mortgage broker is for. We can sit you down and quite literally show you where those savings come from.

 

In conclusion, don’t just shop rate. Don’t accept what your bank gives you. And for the love of all that is holy, let a broker do the dirty work for you. And don’t get me started on collateral charge vs standard charge mortgages…

We’ll save that for when Karyn affords me another 1000 words in the future.

 

Ben Sammut is a registered mortgage planner with Mortgage Architects (Brokerage #10287)

FSCO Lic.# M14000072

1-888-575-4403

bensammut@mortgagegate.ca

*E.O. & E

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