THE BLOG

Need A Mortgage? Here's What You Should Know

06/25/2014 05:21 EDT | Updated 08/25/2014 05:59 EDT

The late spring/early summer market has been very strong in Vancouver. May's real estate report has shown an increase in new homebuyers and because of this, we are seeing a more balanced real estate market. In fact, the sales-to-active-listings ratio in Greater Vancouver was just over 20 per cent for the first time since 2011.

Greater Vancouver has also seen several on-the-fence buyers finally entering the market, which may be due to our consistently low interest rates. The combination of lower rates and typically high Vancouver rent has made home ownership, in some cases, more affordable. With more buyers in the market, more people are shopping for the best mortgage rate possible. Qualified buyers with good credit can demand that mortgage providers compete for their business.

Earlier this spring, Investors Group made waves when it announced a 1.99 per cent, three-year variable mortgage, intensifying the competition for low mortgage rates. Credit unions have also entered the race -- some offering rates between 2.50 and 3.00 per cent. Unlike the banks, they are not regulated by the Office of the Superintendent of Financial Institutions and can use different qualifying rates for mortgages. Banks are also becoming more aggressive by offering lucrative referral fees to realtors that bring them business.

Given these advertised ultra-low rates, more borrowers are turning to brokers if their bank can't or won't offer a comparable rate. One important thing to keep in mind, however, is that many of the lower advertised rates come with strings attached. From my experience, some clients are very rate-driven and don't care about, or take into account, any of the downsides of a specific product. In these instances, they gather all of their information online and consider themselves to be mortgage experts. However, all they have access to are the basic rates.

The 1.99 per cent offered by Investors Group was a short-time promo rate, likely designed to drum up business and encourage clients to move their portfolios over to Investors Group. It was only available through an IG Mortgage Planning Specialist (not through brokers), and refinancing was not allowed before maturity. Early breakage or renewals were also prohibited. And, of course, not everyone could meet the requirements.

Mortgage brokers would be doing their clients a disservice if they simply offered these low rates without clearly going through the details. Although borrowers want the lower rates, some understand that they get what they pay for and prefer to pay the most reasonable rate in exchange for flexibility -- flexibility that may not be offered with the ultra-low rates.

Some clients value the ability to refinance while others prefer to lock in a rate of five years instead of three. Technically, borrowers can get larger mortgages with a lower fixed interest rate of five years or more, but with a variable mortgage they would qualify using the posted rate with the majority of lenders -- so the total mortgage limit would not differ.

Misguided borrowers sometimes choose a less advantageous product based on rate alone. This often leaves them restricted or stuck with a lender that doesn't truly value great customer service.

My advice? Definitely research lower rates. A great place to start is an online rate comparison site, such as Lava Rates. But keep an open mind and weigh all the pros and cons before you sign on the dotted line. Remember, independent brokers don't represent one specific lender and can offer an unbiased view for your mortgage options.

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