DISCOUNTED RATE MAY NOT BE DISCOUNTED AT ALL!
A recent client contacted us to improve their cash flow after a major renovation. They had used a loan and credit cards to complete the reno and now wanted to consolidate (lower) payments and improve cash flow. In other words, they were finding it ‘too tight’.
Their original bank rate was 2.99%. The bank offered them a new rate of 3.49% which they found uncompetitive and so they came to us. We did our analysis and determined that we could lower their payments by over $1,000 per month. They were delighted. But hold on. After asking the bank for the mortgage break penalty, they were told it was going to be $17,843. The calculation was based on the difference between 4.64% or original posted rate and 2.99% the discounted rate. A difference of 1.65%. By the way ‘Posted’ rate is fictional.
We showed them what the penalty would have been if we had arranged their initial mortgage through our lenders and they were shocked. It was $4,228 a difference of $13,615. Wow.
By adding the bank penalty onto the ‘so called’ 2.99% ‘discounted’ rate the effective rate was 3.79% meaning this was the effective or actual cost of the bank mortgage. And of course it represented IRD not 3 month’s penalty.
So be careful when dealing with the banks folks. Better yet, come to us because we protect you. In most cases our lenders charge 3 months interest versus interest rate differential and even when IRD applies, our our mortgage break penalties are are typically up to 75% less. A HUGE SAVINGS.
Consumers continue to be OB-SESS-ED ….the act of being preoccupied or fill the mind continuously, intrusively and to a troubling extent… BY RATE, and continue to be caught in the cross-hairs of bank marketing.
Shouldn’t the focus be on GETTING THE BEST VALUE FOR THE MONEY over the terms of mortgage? Of course it should because here’s where the banks take advantage of you.
Almost 60% or 6 out of 10 new 5 year fixed mortgages are changed/broken/altered within 38 months into the contract. If 60% seems high to you, just consider all the reasons mortgages get broken, like debt consolidation, job loss/change/move, major renovation, death by accident, marriage breakup, becoming disabled and on fixed income etc, etc, etc, and the list goes on. The banks know this and so they pitch ‘Fixed’ vs ‘Variable’ rate, and make a fortune on your back.
Getting a mortgage today is complicated. Should it not involve a professional (expert) who can explain the terms, the pitfalls and find you the best solution for your needs?
Stop letting the banks win the game. Call us for your next mortgage need and we promise to get you the best rate and terms to save you thousands and YOU WIN!