I am dumbfounded to see the advertising in the mortgage industry for the “best rates”. Just as The Bank of Canada raised its key interest rate, fixed rates have been dropping like the temperature in January!
I recently saw one mortgage brokerage firm advertise 3.81% in an ad, but then go on to say that “they could not disclose the lender at this time” who was providing that great rate! What? You mean I get the best rate, but don’t know who it will be with?
A couple of the Big Banks are offering mortgage rates just below 3.99% to entice borrowers away from the average market rate of roughly 4.09%.
What’s the catch? Every mortgage should be the same, right? WRONG!
Every mortgage can be DIFFERENT, but you won’t hear what’s NOT good about the product until you’re signed up and closed! Welcome to the world of The Stripper Mortgage!
The Stripper Mortgage is not an “exotic” mortgage for dancers. Rather, it is a mortgage whose key features have been “stripped” away so that the product can be priced better to attract buyers who focus solely on the rate!
The problem is that the features that are stripped away include being able to transport (port) your mortgage to a new home without a penalty, being able to have a buyer assume your mortgage without penalty (assumption), being able to flexibly pre-pay your mortgage throughout the year, and even being able to refinance your mortgage before the term is up! Some Stripper Mortgages even charge higher penalties than regular mortgage products with traditional features.
Is the lowest rate, even when its features have been stripped, the most important feature of a mortgage?
Why don’t we ask the couple who got downsized at work and need to refinance their debts in order to free up cash flow? Their Stripper Mortgage doesn’t allow for a refinance before the term is up. In fact, they can only get out of their mortgage if they sell their home and pay the penalty!
What about the recent widow who received a life insurance benefit from her husband’s death? She has to pay her mortgage for another 3 years before The Stripper Mortgage Company will allow her to put extra money against her debt. This will cost her $20,000 in extra interest, all because The Stripper Mortgage offered “the best rate” two years earlier.
There is more than one way to entertain yourself, just as there is more than one way to estimate the implications of a mortgage product on your future. The key is finding a professional who will “strip” it all down for you; The Stripper Mortgage and a traditional one have features and benefits that can hinder or help your future, depending on how they are applied to your goals.
Thanks for reading!
Joe Ornato.