It’s easy to get caught up in the idea that comparing mortgage rates will guarantee you get the best bang for your mortgage buck. While this may be true for particular situations, there are many scenarios where this strategy is not effective. Following are three reasons why it doesn’t always pay to make a decision based solely on rates.
Reason #1
Your long-term plan and risk tolerance should determine which mortgage product is right for you. This product may or may not have the lowest rate.
For instance, there are cases where lenders will offer lower rates for insured mortgages. With insured mortgages, however, you’re charged an insurance premium, which is usually added to the mortgage amount. But if you’re not planning on keeping the property for a long enough time to offset that cost, it may be better to take an uninsured mortgage with a slightly higher rate. The cost difference you will pay with the higher interest rate may still be less than what you may pay in insurance premiums.
As another example, if you prefer to budget for a consistent payment and can’t handle rate fluctuations, it may be better to go with a higher fixed-rate mortgage. If you think current rates are low enough and you will be living in your property for at least five years, it may be wise to also opt for a mortgage with a longer term.
Reason #2
One of the biggest mistakes people make when merely comparing mortgage rates is failing to consider important factors such as prepayment options to help pay off the mortgage faster, whether secondary financing options are allowed, early payout penalties, or what fees are involved.
It’s not enough to simply compare mortgage rates because you have to know what “clauses” are contained within the mortgage deal. There may be cases where you will find a lender with the lowest rate and willing to pay for your closing costs, or even provide you with cash-backs after closing.
Reason #3
Lenders can change their rates at any time. As such, if you’re shopping for rates with one lender and then approach another that gives you a lower rate, it’s quite possible that the first lender has also dropped its rates. This is why it’s important to get pre-approved with a lender once you a mortgage that fits your needs. In some cases, you can secure your rate and conditions for up to 120 days.
These are just three reasons why it’s not enough to merely compare mortgage rates. The mortgage rate you may qualify for is also highly dependent on your credit score among other things. In order to get the best mortgage deals, you need to have solid credit.
Sphere: Related ContentGiven the current national credit-crunched lending environment and the slowing real estate market – which has shifted to a buyers’ market – coupled with lower mortgage interest rates, now is an ideal time to invest in the purchase of revenue property.
After all, although the real estate market slowdown has seen prices drop and interest rates dip, rental income has not wavered – making now an optimal time to start building your revenue property portfolio or continue adding to your existing list of properties.
In order to take advantage of this opportunity, the key is to work with a mortgage broker who is an expert in this niche and can provide you with a wealth of knowledge and ongoing information that will help you make informed investment decisions and feel at ease throughout each purchase.
Mortgage brokers offer an invaluable service to real estate investors because, if the mortgages on your investment properties are not set up properly from the on-set of each venture, you will not be able to get future financing – a necessity for continuing to build your portfolio of revenue properties.
Mortgage brokers who are experts in dealing with real estate investors know that a portfolio approach must be taken to ensure future mortgage financing for those looking to purchase revenue properties. An experienced mortgage broker will ask you in detail about your specific property investment goals and develop a game plan for the next five or 10 years based on these goals.
Your mortgage broker can work with you in order to determine where you currently stand in terms of your real estate goals, where you need to be to meet those goals and the steps involved to get you there.
Keep in mind, however, that your plan should be revisited with your mortgage broker at least annually to ensure you’re still on track.
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Sphere: Related ContentWhile No-Frills mortgage products typically offer a lower – or more
discounted – interest rate when compared with many other available
products, the lower rate is really their only perk.
This type of product will only seem ideal for you if you have no
plans to take advantage of benefits that will help you pay off your
mortgage faster – such as pre-payment privileges including lump-sum
payments.
Essentially, this product is only ideal for: first-time homebuyers
who want fixed payments and have limited opportunities to make lump-
sum payments during the first five years of their mortgage; and
property investors who need a low fixed rate and are not concerned
with making lump-sum payments.
No-Frills products also won’t let you take your mortgage with you if
you purchase another property before your mortgage term is up – ie,
portability is not an option with this product. Portability is an
important option that could save you money over the long term if the
home of your dreams is within your reach before your mortgage term is
up and rates have risen, which they have a tendency to do over a five-
year period.
It’s understanding why these products may seem appealing. After
all, during tougher economic times who has the extra cash to put down
a huge lump-sum payment? And who needs a portable mortgage if they’re
not planning on moving until the market picks up? But it’s important
to remember that a lot can change over the course of five years – or
whatever term you choose for your mortgage.
The thing is, you can still obtain great mortgage savings without
giving up the perks of traditional mortgages. For starters, many
lenders are willing to offer significant discounts if you opt for a
30-day “quick” close.
There are, however, other ways in which to earn your own discounts.
For instance, by switching to weekly or bi-weekly mortgage payments,
and by obtaining a variable-rate mortgage but increasing your
payments to match those of the going five-year fixed rate, you’ll be
ahead of the typical 0.1% discount of a No-Frills product within
approximately three years.
No-Frills products represent a great example of why interest rates
are not the only important factor to consider when deciding whether
to opt for a particular mortgage product. Much like buying a car, you
get what you pay for. If you don’t want a car with air conditioning,
a stereo, a cup holder, and so on, then you can get the cheapest car
going… but you’ll likely regret it later.
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