Mortgages - Where Are They Now? (A Case Study)
May 3, 2017 | Posted by: Shayne Beeler
Mortgages – Where Are They Now? (A Case Study)
I learn the most about mortgages not from obtaining an approval but in having conversations with someone that already has a mortgage. Life happens and in many cases, what we are able to do next is heavily influenced by what mortgage product someone has.
I looked back to May 1, 2015 and picked a random file to use as a case study. Essentially, that mortgage today (end of April, 2017) currently has an approximate balance of $300,000, an interest rate of 2.69% and it started with a 5-year term and a 25-year amortization. It’s interesting to evaluate this mortgage by comparing it with 2 other lenders in terms of the potential payout penalty:
*Disclaimer – this case study is merely an analysis using hindsight to truly learn the differences between mortgage products. These penalties assume the mortgage was paid out without porting to a different property (an option with all three lender products I’ve compared) and also doesn’t factor in penalty rebates, which are also an option with some lenders in certain circumstances.
Lender A (the lender in my random file example) - $2093
Lender B - $9900
Lender C - $8915
The part that stands out to me, looking back to that time during 2015, is that lenders A, B and C all had nearly the exact same interest rate.
My point here is that we always need to know what we’re getting into with each term we decide on. Will everyone be in a situation where they have to pay out early 2 years into their term? Of course not, and even those that do, may still be able to “port” their mortgage and avoid the penalty altogether. However, I can confirm there have been multiple instances where porting the mortgage wasn’t an option, and that a payout penalty wasn’t avoidable.
If I can share what hindsight has taught me regarding mortgages, it’s that we can’t just compare lenders based on the interest rate. Of course, we’ll make those comparisons anyway, but we’ll also dig further to make sure the analysis factors the future and whatever circumstances we could potentially encounter. Remember, if we’re taking a mortgage out over 25 years…. Ok, fine, let’s call it 22 years, 5 months if you’re making accelerated bi-weekly payments – there’s a long period of time for “life” to happen over. Let us help you make sense of the differences from one term to the next. We have the benefit of choice AND hindsight to assist us.
