Learning From Your Mortgage Broker
With all the media attention on the Investors Group 1.99% – 3 year closed variable rate mortgage we felt it required us to do some in-depth research on the product. Your bank or broker, SHOULD be able to provide the pros and cons of all available mortgages in our industry!
We thought it was best to hear it straight from Investors Group, SO we gave them a call 905-945-4554 . After 15 minutes of attempted communication with a “Ken H.” we are sad to report: we weren’t able to get full answers on the product – unfortunately after an hour he call back with only a few more basic answers – and begs the question: Should consumers feel comfortable trusting your largest financial need with a lender/bank/broker that couldn’t clearly explain the options / terms?
(Such as prepayment privileges, portability, assumption, locking in, compounding frequency, tax account etc, which are VERY important to know.)
Mortgage Brokers in Canada have up to 34 banks to know ALL terms and fine print in presenting options for clients, thus 1 lender we feel should be held accountable to at the very least know their own.
Perhaps we just weren’t “lucky” with landing on Ken and will move on to the intricacies of this “tactic”.
We have seen this sort of manoeuvre and approach to marketing and fine-print exclusions before! TD with their collateral registration. BMO with their 2.99% and more recently RBC and their “employee pricing.” (even writing that makes me feel like I’m going to be working with a car-company)
Why are Investors Group offering this now, seeing as a few weeks ago you probably didn’t even know they did mortgages?
FACT: They have been in the industry for over 7 years. And therein I feel lies their reasoning and motivation!
Solution: offer cheap money (According to the consultant I talked to – only new clients) with the hope they can cross sell you on other products / restrict the mortgage terms, thus making up for the lost profit. My expectation is they had an actual sciences specialist out-weigh and compare costs of:
- National marketing campaign for print, TV, radio and other active media at costs of: MILLIONS
- Lose some profit margin for 2 months in-house (if the special lasts that long) on a variable mortgage – thus causing the masses to spread the word FOR FREE marketing – and make up on any lost profit with cross selling and a bunch of restrictions/penalties that will cover our profit at another quarter when clients realize they are stuck.
The specific nitty-gritty of pro’s and con’s of this product?
- Great rate – one of the lowest in Canadian History (until Prime starts going up that is)
- Standard prepayment options (from what I could understand)
- They will allow a secured Line of Credit attached to this product
- No refinances – the only way to get out of this mortgage is with a Bona Fide sale of your home. You would still need to pay standard prepayment penalties and breakage fees.
- “Straight Porting” only – no port & increase or decrease. Ie. You can NOT buy a bigger or smaller home during this period.
- No bridging. Ie. You MUST then have the sale date of your new home on the EXACT date of your existing home. (that won’t affect your ability to negotiate price OR cause a bunch of stress double-moving on the same day and then having to do any renovations in a house you occupy will it ?)
- No rentals – at least I was told that this product was “not intended for rentals”
- Assumable – The answer to this question was “usually – that is one of the normal things we offer.”
- You would need to be approved at the Canadian benchmark rate of 4.79% which means you will not get approved for as much as if you were qualified with a 5 year fixed rate
- Can lock in to a fixed rate but you cannot extend the term and their current fixed rates for locking-in are NOT industry best.
Consumers with this must ask of themselves 2 very honest questions:
- “ Am I 100% sure that in the next 3 years there’s not any chance at all I will want to take equity out of my home for renovations or credit card debts? (or job loss or sickness or any other need)”
- “Am I positive beyond any doubt that I won’t move in 3 years, AND if I do, I am ok with breaking this mortgage in 2 years when rates could be higher, paying fees, accepting a higher rate new mortgage because I couldn’t just port and increase the mortgage – which would potentially save me thousands on fees and interest?”
My concern: The ONLY certainty in life – is Uncertainty.
An advisable approach alternatively to accepting “the cheapest” rate upfront, is to ensure your bank or Mortgage Broker provides you with a Full pre-payment optioned, portable, bridge eligible, assumable, best lock in rates mortgage solution (and also give you a clear and full commitment as to how they will be managing your mortgage AFTER closing as well).
Now you know and knowing is half the battle!
Your actual payments for this product are based on Investor Groups 3 year fixed rate – not on 1.99% – Currently Investor Groups’ 3 year fixed is 3.75% so if you are looking for your lowest possible payments this would not be a product that is right for you.