Getting a mortgage isn’t always about the interest rate!

Dear Ross, I live in Dundas, Ontario, and I am considering a 10 year mortgage @ 3.98% from First National. I have been variable with PCF for 12 yrs (prime – 0.9% currently, past few years) PCF might match the FN rate. Better to stay with PCF? They started with 4.04% on a ten year product and might go lower (they keep calling me) I’m 57, mortgage balance $114k, college costs for daughter, but have $22k RESP still available) No other debt. House worth ~ $350k? Single income household. Work until I am 67 (likely dead before *laughing but only half kidding*) Probably only work 7 more years.

I just spoke to a nice guy @ PCF. Sounds like 5 years most popular, now @ 3.34%, amortized over 10 years? Or a variable rate mortgage at prime less 0.1 percent. Weekly payments.

Then he started to talk about the interest rate differential penalty (IRD) being “substantial.” (Example, if I die and house sold) I was not happy with the guy! He actually told me any idiot knows about penalties!!

Must decide, hate the worry. Advice? What would Ross do? Thanks….


Hi Charlotte

It’s not just about the rate. Heaven forbid you have to break your mortgage mid term, you would worry about pre-payment penalties. I for one would not ever work with a mortgage lender who obliquely or directly referred to me as an idiot.

As a matter of fact, most IRD calculations are idiotic, and even to an experienced eye like mine, seem almost random in their calculation. This is one of my personal peeves of the mortgage industry.

I can tell you from 25 years of experience that institutional lenders such as National Bank (and perhaps PC Financial too) tend to have more punitive IRD calculations.

Because most of my clients are going into fixed rate mortgages right now, this is a super important issue for me – I prefer to deal with lenders who have favorable IRD calculations – and that is only one of several lending criteria I apply.

As far as rates are concerned, any good mortgage broker can beat the PCF quote of 3.34% with their eyes closed – 3.29% tops (maybe 3.19% – it depends) for five years fixed; and most likely 3.99% for ten years. If three years were your preference, you could secure a rate of 2.89% – but personally I prefer longer terms.

One nice thing about ten year mortgages is that after the first five years, the penalty calculation reverts to only three months interest – and NOT IRD. Paying an extra 0.7% for ten years of peace of mind (vis a vis rates rising) is not a bad insurance policy.

Charlotte, if you would like my assistance or that of another local mortgage broker, you are  welcome to give me a call – one thing is you can stop being a do-it-yourself expert – and leave it all up to a mortgage expert – we would select from over fifty available lenders, and you will automatically benefit from the lowest rates possible for your circumstances.

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