{"id":11915,"date":"2014-05-22T17:41:47","date_gmt":"2014-05-22T09:41:47","guid":{"rendered":"https:\/\/canadianinquirer.net\/v1\/?p=11915"},"modified":"2014-05-25T17:48:58","modified_gmt":"2014-05-25T09:48:58","slug":"investors-group-mortgage-deal-comes-with-strings-attached","status":"publish","type":"post","link":"https:\/\/canadianinquirer.net\/v1\/2014\/05\/22\/investors-group-mortgage-deal-comes-with-strings-attached\/","title":{"rendered":"Investor\u2019s Group mortgage deal comes with strings attached"},"content":{"rendered":"
\"ShutterStock<\/a>
ShutterStock image<\/figcaption><\/figure>\n

If you\u2019ve been shopping around for a mortgage, you\u2019ve probably heard about\u00a0Investor\u2019s Group\u2019s offering of a variable-rate mortgage for 1.99% for a three-year term. This seems amazingly good. But is it too good to be true? Here\u2019s the\u00a0lowdown on those down-low mortgage rates.<\/p>\n

It\u2019s important to understand the mortgage lending business is intensely\u00a0competitive, because for mortgage lenders, it is also hugely lucrative. As a\u00a0simple example, let\u2019s imagine you take out a mortgage of $250,000 with a 25-year amortization, and at a typical current mortgage rate of 3.14%. And let\u2019s\u00a0also say that nothing changes in that 25 years \u2013 not the rate, not the term, not\u00a0the amortization. Your monthly payment would be $1,201.15, and in 25 years,\u00a0you\u2019d have paid off the mortgage. But you\u2019d have paid total interest of $110,343.<\/p>\n

That\u2019s about 44% of the value of the principal. You can see why lenders want your\u00a0business, and want it for as long as possible.<\/p>\n

In the real world, however, rates, terms, and amortization periods change\u00a0frequently \u2013 in fact, they can change each time your mortgage comes up for\u00a0renewal at the end of the term, which can be one, three, or five years. With\u00a0standard fixed-rate mortgages, the mortgage interest remains the same over the\u00a0term of the mortgage. Current three-year fixed mortgages can be found for a recent\u00a02.74%.<\/p>\n

Variable-rate (also called adjustable-rate or floating-rate) mortgages offer a lower\u00a0rate set at some discount to the prime rate, typically about 50-60 basis points\u00a0(there are 100 basis points in one percentage point). Recent three-year variable\u00a0rate mortgages were offered at about 2.4%. While the interest rate on the loan may\u00a0rise if and when the prime rate rises during the term of the loan, the discount to the\u00a0prime rate remains unchanged.<\/p>\n

Variable-rate mortgages usually also let you convert to a fixed-rate mortgage\u00a0during the term of the loan, which can be a useful feature if interest rates start\u00a0climbing. Also, there\u2019s typically only a three-month penalty for getting out of a\u00a0variable-rate mortgage. For fixed-rate mortgages, the penalty is usually the larger\u00a0of three months\u2019 interest and the interest rate differential (IRD).<\/p>\n

The exceptionally low rate of prime minus 1.01 percentage points offered by\u00a0Investor\u2019s Group on its three-year variable rate mortgage promotion departs from\u00a0the usual variable-rate offerings in a number of important respects. Refinancing\u00a0and early renewals are not allowed on this loan, although you can lock into a fixed rate at any time. A 15% annual lump sum repayment is permitted, along with annual increases in regular payments. Note too that the interest rate is based on the\u00a0Investor\u2019s Group current one-month prime fixed rate of 3%, and is adjusted on the\u00a0first business day of each month. As with any variable-rate mortgage, if the prime\u00a0rate rises, so will your mortgage rate. The one restriction to pay most attention to is\u00a0that you can\u2019t break the mortgage without selling your home.<\/p>\n

The key with a variable rate mortgage is whether and to what extent you can\u00a0withstand a rise in rates. You need to have a cushion or margin of error for\u00a0those monthly payments. In other words, when contemplating a variable rate\u00a0mortgage, you need to realistically budget for a higher monthly mortgage payment\u00a0than what\u2019s on offer. So if the 1.99% rate offered by Investor\u2019s Group is at the\u00a0maximum of your affordability scale for monthly payments, it\u2019s probably not a\u00a0good idea.<\/p>\n

Finally, don\u2019t be pressured by \u201climited time\u201d marketing offers. You can see that\u00a0mortgages can get tricky, and there are big bucks on the line \u2013 yours. So if you\u00a0have any questions or doubts, I\u2019d recommend consulting your financial planner or\u00a0an objective mortgage broker before you sign on the dotted line.<\/p>\n

Courtesy of Fundata Canada Inc. \u00a9 2014. Robyn Thompson, CFP, CIM, FCSI,\u00a0is president of Castlemark Wealth Management.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

If you\u2019ve been shopping around for a mortgage, you\u2019ve probably heard about\u00a0Investor\u2019s Group\u2019s offering of a variable-rate mortgage for 1.99% …<\/p>\n","protected":false},"author":44,"featured_media":11916,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[21],"tags":[3994,3995],"class_list":["post-11915","post","type-post","status-publish","format-standard","has-post-thumbnail","category-real-estate","tag-investors","tag-mortgage","mauthors-robyn-k-thompson","mauthors-fund-library-newswire"],"_links":{"self":[{"href":"https:\/\/canadianinquirer.net\/v1\/wp-json\/wp\/v2\/posts\/11915","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/canadianinquirer.net\/v1\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/canadianinquirer.net\/v1\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/canadianinquirer.net\/v1\/wp-json\/wp\/v2\/users\/44"}],"replies":[{"embeddable":true,"href":"https:\/\/canadianinquirer.net\/v1\/wp-json\/wp\/v2\/comments?post=11915"}],"version-history":[{"count":0,"href":"https:\/\/canadianinquirer.net\/v1\/wp-json\/wp\/v2\/posts\/11915\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/canadianinquirer.net\/v1\/wp-json\/wp\/v2\/media\/11916"}],"wp:attachment":[{"href":"https:\/\/canadianinquirer.net\/v1\/wp-json\/wp\/v2\/media?parent=11915"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/canadianinquirer.net\/v1\/wp-json\/wp\/v2\/categories?post=11915"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/canadianinquirer.net\/v1\/wp-json\/wp\/v2\/tags?post=11915"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}