In a September 22 post on the company’s website, Dominion Lending Centres accredited mortgage professional Jordan Thomson outlined the various reasons why broker-supplied figures are often superior to bank rates.
The case study Thomson provided is one of her recent clients, who was aiming for a property worth $430,000 and had enough funds to complete the required 20 per cent down payment, but was looking at making just a 15 per cent deposit.
“The bank rate was for an insured mortgage (meaning less than 20% down) which would require he pay mortgage default insurance of $6,579.00. This would increase his mortgage amount and be to the benefit of the lender. Of course, he would also be paying more interest as his mortgage balance would be higher,” Thomson explained. “The rate I quoted him was for a conventional mortgage, so no mortgage insurance and no mortgage insurance rules!”
The different rules governing the two mortgage types can determine how long the client will be paying.
“[An] insured mortgage can only be amortized up to 25 years, while a conventional mortgage can be amortized up to 30 years (and in some cases 35 years). So when calculating his monthly cost, he would in fact be paying over $300 more per month if he was to put only 15% down,” Thomson wrote.
“At the end of the 5 year term, he will have paid $2,467.48 more in interest and $18,562.28 more in monthly payments with the bank rate on his insured mortgage. For this particular client, keeping more money in his pocket each month is crucial. To further reduce his interest payments and amortization period, I would encourage a bi-weekly accelerated payment.”
“Should the need arise, my client would have a likelier chance of being able to refinance his mortgage if he required the extra funds because you can only refinance up to 80% Loan To Value of the home,” Thomson said.
Industry professionals can provide a value-added service to consumers in the form of interest rates that would allow their clients to enjoy the benefits of the lowest possible monthly payments.