As a mortgage broker of 37 years, I am always amazed that the first question I am ask is “what is the best rate?”. I then must remind myself that it’s possible that I would have asked this same question 37 years ago before becoming a mortgage broker. I decided it’s not that home buyers are obtuse; they are just not experienced and don’t have the knowledge necessary to be asking the right questions when it comes time to getting a mortgage and looking at mortgage rates.
Recently I was speaking with clients from Barrie, Ontario. They are a very nice couple looking to purchase their first home. They started like most, by asking that famous question, “What is the best rate? “. I quickly said we have over 7,200 choices and it will take from now to Christmas to review them all with you.
I know I was being funny but if we have over 50 lenders and we have Insured, insurable, and uninsured mortgages. Then we have 6 months, 1, 2, 3, 4, 5, 7, 10, and 25-year terms and then we have Hi Ratio and conventional products that have different Gross Debt Service Ratio’s and different Total Debt service ratios. You can see when you run the math that it would not be far off the 7,200 choices as I stated.
Look at where the mortgage market is sitting today. Did people in the past simply ask for the best rate and as a result they took a variable rate mortgage, during the pandemic the lowest variable rate was about .99% in the height of COVID? Now these same people are paying around 6% on a variable rate. So, did they get the best rate at the time? Yes, but do they have the best rate now? Certainly not. This is not to say this happened with all customers, in many cases, people were provided options and formed their decisions based on facts.
One fact that’s been around a long time is, those people who elect to take variable mortgage in history typically pay less Interest than those who elected fixed terms. I believe this to be a true statement if we look at history, however it must come with a discloser, that you need to be able to survive not just the good times but the bad times as well. This is where we are sitting today, it’s a bad time to be in a variable rate mortgage now. Especially seeing the bank of Canada has move prime up 10 ten times in the last 16 months. However, if you can afford to ride these waves, brighter times are ahead as rates will fall once again as they always do.
The question no one can truly answer if they are being honest is when will these rates fall? Unfortunately, this is not within our control. So, a question today may be “would or should a client consider a variable rate mortgage today? “. I believe the answer is yes if they can afford to take the risk! Often looking back on our decisions is not a good thing because your thought process of today is not the same as it was when you made the initial decision. I am sure if we had a second chance at everything we did, the outcome would be much different.
Look at me for example, I was golfing the other day and often I would miss my putt but when I did it again, I would often sink the putt on the second try from the same location. What I need to understand is the information I had before the second putt was
quite different then it was before I made the first putt. It could have been the speed or the break or a million other reasons, but my brain had different information that it processed thus, a different result between the two putts.
So, what should clients who have a mortgage or are looking to buy a home be asking? The first and most important is, “is this home affordable?”. Then be followed by “can I afford the payments?”, “what changes are expected in my life ahead?”, “will income be increasing, or possible decreasing as I may be going on parental leave?”. These are just a few questions we should be thinking about. These are the same questions you should be discussing with your mortgage broker well before putting in an offer.
Today is one of the most challenging times to get a mortgage in recent years, it’s like the world is stacked against you with these higher interest rates. But that may not be as bad as it sounds, as we have seen prices fall from their peaks in 2022.
I have recently been working with a Brampton Ontario couple that are looking to move north. They have an offer in on a property and were discussing terms. On this particular deal we were looking at a 5-year fixed mortgage term, a variable rate mortgage and a three-year fixed mortgage term. Each product has advantages and disadvantages.
It’s all about understanding and empowering them with all the proper information available, so they can make an informed decision for their family. This is what a good mortgage advisor is supposed to do for their client, provide information and ask questions that could affect them if not taken into consideration.
When buying a home today, I believe you need an expert in your corner. Being self-educated is not always the best choice as there is a lot of miss information out there today. Just because you read something on Google does not mean its 100% true. Big banks and financial institutions may not be giving you all available options. I would agree that rates are a very important factor to consider but it should not be the only factor.
Let’s look at another scenario that I am current dealing with. A client’s mortgage has come up for renewal and the rates of today are much higher than when this individual took out their mortgage five years ago. The major concern was affordability to get through this challenging time. We are looking at all the offerings on the renewal, 1,2,3,4,5 and variable. But all options had very high payments. We then looked at other options, in this case doing a refinance to a 30-year amortization. The result was the interest rate was higher but because of the longer amortization the payment was a few hundred dollars cheaper, and this would allow the client to keep their home. Rate was important but not the only factor.
So, when shopping for a mortgage, first know your end game. Where you want to be in the next five or ten years, this should play a major role in the product offering your considering along with the rates. Look for a mortgage agent who is invested in you and your family. If you have any questions, please feel free to reach out to me. I will be happy to help you achieve your financial and family goals. Working with a mortgage broker can open more doors to multiple lenders that you may not have had access to yourself. We can also help you discover new avenues you may not have known existed.
