Barnstone Mortgage

6 Common Mortgage Mistakes

With almost 20 years in the mortgage business, I have worked with thousands of clients each with unique circumstances. Every application is a little different and sometimes there are multiple ‘right’ answers, yet I often meet with new clients that have been ill advised regarding their mortgage in the past.

Here are some common mortgage pitfalls to avoid.

1/ Cash Back Mortgages – some banks will offer clients a percentage of their mortgage amount back in the form of cash. Sounds great! But the reality is that these mortgages come at higher rates than other mortgages. The bank doesn’t give anything away for free. About 99% of the time the extra interest you will pay on a cashback mortgage is easily a higher amount than the cash back you received. Also – if you sell the property during the 5 year term – you have to pay back some or even all of the cashback amount.

2/ Mortgage Life Insurance – I have talked to clients who had been told by their previous mortgage suppliers that the life insurance was mandatory. This simply isn’t true. Most clients need some form of insurance, but the product the bank sells is more expensive, and has less comprehensive coverage than what you can get elsewhere. This topic requires more space than I have here – so if you would like more details, send me an email and I will forward you a couple of informative articles.

3/ The Absolute Lowest Rate Option – the first question I get from new clients is always ‘what is your lowest rate’. It’s a valid question, but it’s a two-part answer. Many banks have ‘no-frills’ type mortgages with rock bottom rates, but in return you give up a lot of privileges. For example, these ‘no-frill’ products usually have no pre-payment options, they aren’t portable to a new property if you move, and worse, they can have penalties that are three or four times higher than standard penalties should you sell your property during the term. I tell my clients that I can get them the Absolute Lowest Rate, but in most cases, an extra .05% or .10% in interest rate can get them a much better mortgage. All mortgages are not created equal.

4/ Not Getting Expert Advice – let’s be realistic, a bank is most likely going to try and put you into the mortgage product that makes them the most amount of money. It’s their job to maximize shareholder profits. There are many types of mortgage choices: open vs. closed, variable vs. fixed, short term vs. long term. I will ask the right questions to come up with the strategy that works best for YOU, not the bank. In my mind this is the number 1 reason to use a mortgage broker.

5/ Paying Down the Mortgage – the concept is sound: pay off your mortgage as quickly as possible. Unfortunately I have seen hundreds of cases where clients were making extra lump sum payments, and paying their mortgage on accelerated payment schedules while at the same time carrying increasing balances on much higher interest rate credit cards and lines of credit. Robbing Peter to pay Paul. And Peter is costing you more money. Pay your mortgage off as aggressively as you can or want to, but make sure your consumer debt is paid off first.

6/ Last Minute Shopping – Canadians are very good at procrastinating (for example, I was supposed to write this article two weeks ago). It is important to start your mortgage planning as soon as you know that you are going to be in the home market, and also at least four months before your renewal date. I do my best to remind existing clients of upcoming renewals, and I am happy to send new clients reminders if you want – just send me your contact information and your mortgage renewal date. Interest rates fluctuate, sometimes more than others. A broker will be able to hold an interest rate for up to 120 days so if the rates go up in that period you are protected. A little known banking industry secret: if rates are holding steady or decreasing, the big banks will contact you six to 12 months before your renewal to try and get you to renew early. If rates are increasing, the big banks will wait until the last couple of weeks before your renewal to get in touch with you. Let me work the system for you to your advantage.

As part of my ongoing service to you, I am happy to review your mortgage with you at any time. Please feel free to call or email if you are thinking about:
– buying a new home in the next year
– paying down your mortgage or increasing your mortgage payments
– renovating your current home
– purchasing an investment property
– use your home equity to consolidate any higher interest debts to improve monthly cash flow
– purchasing a vacation / recreational property

Let me know if there is anything I can help with, or if you have any questions about your mortgage – anytime.


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