Whenever the topic of mortgages comes up, all I hear about are rates. Yes, mortgage interest rates are important. Right now rates are really low and the talk has been that they may be falling further.

I’m not sure about that.

The economy is hopping, consumers are spending (consumer debt is high), unemployment is low, corporate profits are stable. The central bank will probably hold a bit of their economy stimulating, rate cutting ammunition in the kitty for future, unforeseen disasters; ie. unresolved trade wars. Also, it looks like Trudeau, his Federal Government Home Buyer Incentive and mortgage stress test are here to stay.

Why do I think that? Previous provincial legislature ministerial office work taught me that, despite all the drama, the revolving door of lobbyists and the pseudo-issues that are apparently being dealt with, a lot less is happening in there than you’d hope. For instance, one day the entire Legislature was captivated by the story of a feral cat while a section of the province was literally without health care.

It’s not policy that gets people elected. These days it’s photos. We’ve fallen that far. Basically the pictures of Scheer in the media are awful which makes me think that the establishment and their media minions are gonna give JT another go. We’ll see. Either way, it won’t change my life much.

Oh ya…rates. Despite all this low rate talk, the number 1 warning I give to clients is “Look out for the mortgage terms and conditions. Especially the penalty.”

Why? Go and Google ‘Canadian mortgage penalties lawsuits’.

This will bring up a pile of gross articles about how Canadian lenders have abusive pre-payment clauses designed to wring every last possible cent out of your tight Wranglers and LuLus before you can have the privilege of paying off the loan they gave you.

One article in the Montreal Gazette discusses a current class action lawsuit against lenders. They cite examples where the lender (TD) charged the client $12,648 Interest Rate Differential (IRD) penalty instead of the 3-month interest penalty of $2,247.  A further and worse example – a client was forced to pay $29,340 IRD instead of $5,788 3-month interest (CIBC).  Unfortunately for the client, this is all detailed in the mortgage contract.

Problem is that penalties are rarely explained adequately. Nor is enough discussion and strategy focused on finding clients an appropriate mortgage that takes into account their future plans. Consider job transfers, moving up from the starter home, etc.  Mortgages with shorter terms or variable interest rate mortgages are often preferable alternatives for those unsure about locking in for five years.

By the way, this penalty practice does not exist in the US. You can take out a 25-year or 30-year mortgage and pay it off fully at any time without penalty. Seems like the pirates have set up shop north of the border.

Luckily, Canadians have access to a wide variety of lenders including big banks, credit unions, mortgage companies and other specialized sources of finance. By choosing their lender carefully and reading the contract fine print, applicants can avoid institutions with tyrannical penalties while also getting in on the low rates.

Not all mortgage lenders are created equal.

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