Skip to main content
spring mortgages

Real estate agent Jenelle Cameron says a small rate difference can mean thousands of dollars over the mortgage’s life.

After you've found the perfect home and the mortgage with the best interest rate, you're not quite done, Jenelle Cameron says.

"Do your research, don't just jump on the first product you're offered," says Ms. Cameron, a Toronto-area real estate agent with Re/Max Hallmark Realty Ltd.

While interest rates are important, they're not the only factor, she says.

You should start researching before you zero in on a particular property, at the stage when you seek preapproval for the mortgage you may end up signing.

"There is no perfect answer and no crystal ball, but you should discuss all options and understand the plus and minus of each option before making your choice," says James Robinson, mortgage broker and owner of Dominion Lending Centres Mortgage Watch in Toronto.

The actual interest rate is still important, so you shouldn't completely ignore it. But the amount you end up paying has a lot of additional variables, he explains.

"A small difference in the rate can mean thousands of dollars over the life of the mortgage, but it can work in both directions."

The term of the mortgage can make a difference, for example.

"If you take a one-year term because it has a lower rate than a five-year term, you may save, but you may not if, in one year, rates have increased and you have to renew into a much higher rate," Mr. Robinson says.

"Alternatively, you may choose a five-year fixed rate to have the security of knowing what the rate and payment will be – only to watch rates fall and not get the benefit you would have if you had chosen a shorter term or a variable."

Ms. Cameron says that, "historically, variable rates tend to do better, and when people don't realize this, they just lock into a fixed rate." On the other hand, "it's not as simple as what might be the cheapest rate, because what may be the cheapest today might not turn out to be the cheapest later on," Mr. Robinson says.

"If taking a variable rate is going to save you $500 a year in interest costs but you're going to wake up in a cold sweat whenever the rates go up, it's probably not for you."

While the economy can change, there's little worry about rates going up right now. Lending rates in Canada and, indeed, most of the developed world, have been at historic low levels since the 2008 stock market crash.

The Bank of Canada, which announces its key overnight lending rate eight times a year, kept the rate at 0.5 per cent in its most recent announcement in April, and experts see few signs of an increase coming before 2017, if then.

Sami El-Farram, a mortgage broker at Total Mortgage Source 360 in St. Catharines, Ont., says it's important to make sure you know how much money your property is registered for by the lender.

In some cases, lenders put higher values on the property than what you paid for it. This leaves you room to borrow more money from the lender later, for example through a line of credit.

"But it's also a form of golden handcuffs. You have to stick with the same bank because if you want to switch, you have to refinance and you may face penalties," Mr. El-Farram says.

Self-employed people should really look beyond the interest rate, Ms. Cameron with Re/Max says.

"Self-employed people traditionally qualify for mortgage amounts based on net income. But if you're self-employed, you usually have a lot of write-offs and your net income can be really low on paper," she explains.

"There are all kinds of different products available for self-employed people, though. Certain lenders will qualify you based on your gross income, as you would if you were employed."

Ms. Cameron says that as an agent, she doesn't purport to be an expert on mortgages, so she recommends that clients consult a mortgage broker. Brokers have access to mortgage information from a wide range of lenders, not just the big banks, although they can work with them as well.

Also, "people don't realize that they don't have to pay for a broker," Ms. Cameron says. The lender does.

Mr. El-Farram says that to encourage mortgage seekers to look beyond the interest rate, "I ask them, how long are you planning on staying in the house? If it's five years, they'll want to know what it might cost them to get out of the mortgage then."

Mortgages come in so many varieties that it can be confusing in the best of cases, and the interest rate can bedazzle the consumer.

"It's like going to Costco and picking out a 60-inch television that looks great. You may love it, but what if it doesn't fit into your living room?" he says.

Interact with The Globe