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Is lowest mortgage interest rate always saving you more?

7 December 2012

Recently I had customer call me to refinance his $100,000.00 mortgage. He was looking for the best deal and already had done some leg work finding brokerage offering 2.94% interest rate on 5 year fixed term. After reviewing his application I have suggested another product with interest rate of 3.04% although I also have lenders offering 2.94% on 5 year fixed term. So you might ask why wouldn't I offer the lowest interest rate available?

Lets look at all the fees and other costs associated with this type of transaction.

With the 2.94% 'deal' the customer would have to pay the following expenses out of his pocket:

$320.00 - Discharge fee 
$545.40 - Mortgage insurance + PST
$250.00 - Title insurance
$800.00 - Approx. lawyer fees

So the total in fees/insurance, etc would be $1915.40. The monthly payment for this scenario came out to $470.17

 Now we will review the fees for the 3.04% offer.

$70.00 - Discharge fee (the new lender provided up to $250.00 towards discharge fee)
$0.00 - Mortgage insurance (new lender paid for mortgage insurance)
$0.00 - Title insurance (again paid by the new lender)
$0.00 - Lawyer fees (once again paid by the new lender)

In this case total for fees/insurance would be mere $70.00. Since the mortgage interest rate was higher the monthly payment was higher as well, $475.30.

Savings on fees with my solution were 1845.40, while $307.80 more would be paid in monthly payments over 5 year term ($5.13 x 12 months x 5 years).

So was the lowest interest rate saving most money? Obviously NOT. With the lower mortgage interest rate the customer would have paid $1537.60 more. Clearly as this case shows mortgage interest rate is only one factor you should consider when looking for mortgage. 

If you choose to call me to arrange for your new mortgage, renewal or refinance of your existing mortgage I will make sure you are getting the best deal around and the mortgage will fit your personal financial situation and long term objectives.

 

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Walter Pawlowski Ontario Mortgage Agent M11002486