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23 Jul

Why lowest interest isn’t everything?


Posted by: Anna Shcherbatykh

When we go to auto dealership to buy a car, we all know the cheapest doesn’t mean the best. We look at different features of the car, comparing design, safety, and automakers. The perfect fit to our needs is our main priority. The price comes second. But when it comes to mortgage, consumers seem to be concerning only about the price (the interest rate). But is the mortgage rate everything?

No, mortgage rate is just one of the factors that should be considered. Similar to car shopping, consumers should carefully look into all product features that come with a low interest rate. But consumers argue that mortgages are all the same, this is not the case. There are over 20,000 different mortgage products available today on the market. Each one comes with completely different features and different conditions. Therefore, it is extremely important for consumers to understand, what they are choosing.

Summarizing main differences, here is what you should be looking for:

  1. Amount of Penalty: Look carefully in the commitment the lender offers you, what is your penalty going to be if you break your mortgage before the term is over. Even though, you can be tempted to sign for the mortgage with extremely low rate but very high penalties, justifying it as if you weren’t going to sell your house within next 3, 5 or 10 years. Remember, life is unpredictable sometimes, and you do not want to put yourself in a blind alley situation.

If one of the penalty options is Interest Rate Differential (IRD), ask your lender how they calculate it, ask what their current posted rate is.  Different lenders have different ways of calculating it. Posted rates can vary significantly as well. Make sure you understand all the differences.

  1. Pre-payment Option: Pre-payment option is how much more you are allowed to pay back other than scheduled periodic payments.  Some lenders allow higher pre-payment options than the others. It may seem not important to you at this moment. But in the future you may get a promotion and be looking to pay off your mortgage sooner in order to save money on the interest payments.


  1. Agreement terms: Look for other agreement conditions. Is there any financial “trip lines” that may work unfavorably for you in the future. Is there terms that you do not understand, or terms that concern you? Seek for advice if you don’t understand the conditions.

When you find a deeply discounted mortgage rate, talk to a mortgage specialist. They can help you find the right combination of a low rate and the options you need to purchase the home and assist you in understanding all the terms of your contract, so there won’t surprises for you in the future.