Is the Best Mortgage Rate Important?

Mortgage clients constantly tell me "I need the best mortgage rates.  What rate do you offer?" 

While the client is always right, and we always provide the best rate and terms, we do convey the need to look at the "extras" when selecting the best mortgage.  Extras include:

  • Low prepayment penalties
  • Generous pre-payment privileges
  • Cash back
  • Cash back clawbacks
  • Free home warranties
  • Professional mortgage planning
  • Low lender fees (if applicable)
  • Portability
  • Missed payment flexibility

Clients are attracted by even a 0.1% savings in mortgage rates.  But when you do the math, the relative importance of the "extras" become clear.  0.1% savings on the typical 5-year $250,000 mortgage equates to:

  • A difference in monthly payment of only $14
  • A savings of just $346 over five years on your mortgage balance

Just one of the extras above could offset this 10 times over.  Think about that next time you're mortgage shopping.

  1. I think your calculation for 0.1% savings on 250K the mtg should tell the client totally savings for over 5 yrs. you said mthly difference is $14, so 14 times 60 payments equals to $840 plus $346 savings on mortgage balance at the end of the term, so total savings should $1186. if you tell the client 0.1% rate discount means over $1000 savings, i think there would be another story.

  2. Do first time home buyers have to pay the land transfer tax if they are purchasing in scarborough and the price of purchase is less than $250,000?

  3. i have my mortgauge with RBCbank at 5.14 %. my remaining amount is 247000 i want to swithover any one lowest rate pl advise me . how my penaulty i will pay to bank with remaining 36 months.

  4. Hi Daljeet,
    Step one is to determine your exact penalty. Give RBC a call to find out what it is.
    Then call a mortgage planner you are comfortable with and ask them to compute if it makes economic sense for you to switch.
    Good luck!
    Rob

  5. I’m confused as the interested rate is going lower and lower, while I’m locked at 5.4% for another two years.
    Ok here is the story, I have a house which is about 300K worth and I have just under 125K mortgage remains on it. My mortgage policy matures in Apr 2011, interest rate is 5.40%. I actually bought house three years ago and I put over 25% down and I paid off about under 80K in principle in three years (my bank allows me to pay max 15% principle each year, so I try to make extra payment each year).
    I was wondering if it is good idea to refinance it? Even though I don’t need any extra money right or anything. Only thing that is making me think about is interest rate which is almost at 4%. My refinance plenty will be around 3,400 (meaing I have to pre-pay interest difference for the rest of the term).
    I hope/think I will be able to pay 15% each year for the remaining term.
    So do you think if it’s good idea to refinance or I should stick with what I have at the moment?

  6. Aman, It’s tough to get comprehensive and specific personal advice on a message board. You may want to call a mortgage planner directly….Dave

  7. $14 dollars per month includes interest and principal, so if you count $346 and $840 you are double counting the interest.

  8. If you are a first time home buyer in Canada you do not have to pay the land transfer tax, and if your spouse has been a home owner and you haven’t you only have to pay 50% of the land transfer tax. There are ways to register your new home that can save you from paying the land transfer tax if one of the buyers has never been a home owner.

  9. Hi Aman, I have been trying to work out what would be best for you. Our best five year fixed is sitting at about 3.69%, using the information that you have given and please note that this is a rough estimate, but with my calculations you would save about $4500.00+/- in two years. Here is a question for you, are you paying, monthly or bi-weekly?? let me know and I can tell you how much you can save by paying bi-weekly.
    Ana
    [Edited. Hi Ana, Thanks for the post. Just one little request: To keep the site from being overrun with promotional links we ask folks to please limit their links to the “URL” box. Many thanks. – Elizabeth, CMT]

  10. My mortgage is coming for renewal in next few months. I have very good credit rating. What is the best 5 year closed variable rate I can expect.

  11. Is this true for all of Canada? I am currently building a turnkey home in NS, first time for both my girlfriends and i, and no one has mentioned this. i currently have the land transfer tax in my budget, but this would certainly be a big help… I could use the furniture!

  12. Make sure to ask RBC servicing to email you the calculation they used for determining your penalty.They seem to pluck numbers out of the air to deter you from even considering a switch or refinance.

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