Who Should You Get Your Mortgage Through?
Hi Everyone, this is Aleem Peermohamed – The Mortgage Specialist Vancouver BC.
One of my existing clients, who is an avid supporter of TD Bank, all of his dealings including his mortgage has been with TD Bank for years and years. Two years ago, when he came to me, based on his financial and employment situation, I recommended that we go with another lender for his new mortgage.
After much discussion, the client decided to go ahead with my advice, and just last week, when he came to me to refinance his mortgage, to take out some equity for an investment purchase as well as to take advantage of the extremely low rates we are currently experiencing, he thanked his lucky stars that he followed my advice two years before.
I’d like to share with you today a story about how I was able to help a valued client save a lot of money.
As an independent Mortgage Planner, I have a relationship with virtually every major lender in Canada. Many of you have asked me in our various conversations why I don’t fund more mortgages with say TD Bank and “all the big banks”.
One of the main reasons is their penalty calculation. From my experience, the big banks “form” of interest rate differential calculation is more “debilitating” to the borrower than the interest rate differential calculations of “non-bank” lenders.
Most of the big banks will base the penalty that you are going to pay on a fixed rate mortgage off of their posted rate, which is much higher than say, a discounted rate. The difference right now between the current posted rate is 5.19 vs a discounted rate of 2.69.
If you were to add that up over five years, it can be a pretty hefty sum. So you want an institution that’s not going to use a high posted rate or not going to use a high rate on their IRD, interest rate differential penalty calculation.
Now most non bank lenders don’t even have posted rates, so when they are calculating their IRD, they are basing it off of a much lower rate. In other words, you’ll be paying a penalty between 3.19 and 2.69 for the remainder of the term versus 5.19 and 3.49. It’s a very big difference between the way those penalties are calculated.
In my client’s case, it amounted to a difference of approximately 22,000$!
This is all stuff that goes on behind the scenes. You won’t be aware of it until you go to pay out your mortgage and are horrified by the penalty your big bank is charging. You may find this hard to believe, but the truth of the matter is, that your bank’s main goal is maximizing profit for their shareholders.
So if you’ve been dealing with the same institution for many years and you’re fiercely loyal to them, be weary of the fact that your trusted institution is out to make a buck, and it is up to you to align yourself with a trusted adviser to make sure your interests are covered.
We, as licensed mortgage professionals, have a fiduciary responsibility to put you, our clients, needs and interests, ahead of ours. Your bank, they have no such obligation.
The Mortgage Specialist Canada, Aleem Peermohamed.
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