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Published: February 13, 2016 • Last updated: January 6, 2021 at 7:23 am
Your Bank Isn’t Always The Best Choice For A Mortgage
Most of us have accounts with a chartered bank, so it’s natural we turn to them when we need a mortgage.
- “It’s convenient to have it all in one place.”
- “They know my situation best.”
- “My family has always done their mortgage with…”
- “I don’t trust those other guys!”
…these are a few of the reasons I hear all the time.
And it’s true sometimes your best bet will be your bank, but you certainly owe it to yourself to consider the alternatives. Here are a couple of real-life stories from the past few months. You will start to see why you really should think outside of the bank.
Massive Penalty for Breaking A Mortgage
Jeff is a successful executive working for a multi-national company in their Toronto office. Late in 2014, he needed a mortgage of over $1 million to finance his purchase of a stunning new home in the GTA. We offered him a competitive fixed-rate, five-year mortgage. He decided to take the “same offer” from his bank as it was “more convenient”.
Last week he called me in a panic. He explained he had been transferred to the Chicago branch of his company, and needs to break his bank mortgage. The bank has quoted him a pre-payment penalty over $36,000! Could this be possible??
Jeff asked me how much the penalty would have been with the lender we had approved him with – the answer is around $7,600. That’s a difference of $28,400 – that’s an awfully large price to pay for convenience!
Paying A Higher Interest Rate Than Necessary
Chris and Jane are getting married this summer. They are both selling their homes to buy a super nice rebuilt townhome near Rosedale. They recently asked me to quote a five year, fixed-rate mortgage for $700,000. I came back with a competitive rate. Jane confided their bank had offered a rate which was .49% higher – not so great.
The problem is Chris’ existing $300,000 mortgage on his present home is already with this bank, at an even higher rate, and they have quoted him a penalty of $11,000 to break it. They threw him a lifeline and said he could avoid the penalty if he simply increases his financing with them by $400,000. He keeps the $300,000 at the higher rate and the remaining $400,000 will be at a slightly reduced rate (still .49% higher than the rate I had quoted). They cannot afford to take the better rate I quoted thus denying them the mortgage they deserve – in effect, Chris and Jane are captive customers.
The point of these two stories is your blind loyalty to your bank might cost you down the road if life throws you any sort of hiccup. Share on XStatistics show many people break their five year mortgages before maturity – the average term is 38 months. Let’s face it, that could be you someday. And that’s why you owe it to yourself to think outside of the bank.
Do you have questions on this or any other topic? Ask Ross how he can help.