A Peek Behind Deeply Discounted Mortgage Rates
Posted by Brad Speniel | May 23, 2015 at 8:40 am
ESTIMATED READING TIME: 1 minute
When considering a deeply discounted 5-year rate, keep in mind that cheapest isn’t always best. Strangely, we know that’s true when we’re shopping for anything else – but we still tend to think that the one and only factor in choosing a mortgage is that we need need to get the lowest mortgage rate. But, that low-rate mortgage could actually cost you more in the long run.
Read the Fine Print
An amazing cut-rate mortgage could have you locked in to a very rigid contract filled with financial “trip lines” that could work against you down the road. That’s why it’s important to check the fine print. For instance, is the mortgage fully closed? That means you’re not leaving the lender unless you sell your house, so your options are limited and you have no negotiating power if your needs change in the next 5 years.
What about Pre-Payments?
With low or no pre-payments, you have no or limited ability to chip away at your principal to reduce your overall cost. Maximum 25-year amortization can take away flexibility you may need later. Many prudent homeowners take a 30-year amortization but set their payments higher using a 25-year or lower amortization. This gives them the option to
reduce their payments should an emergency arise or a special need like maternity leave. For first-time buyers too, a 25-year amortization means higher payments than a 30-year amortization and could limit their entry into the market.
When you find a deeply discounted mortgage rate, talk to a mortgage broker first. They can help you find the right combination of a low rate and the options you need to purchase the home you want and achieve a comfortable financial future.