When it comes to obtaining a new mortgage, the number one question I am asked is “What is your best rate?” My reply is always, “Best rate for what?” I already know the answer, but I am always curious to hear if they know.
The answer is - the best rate for the 5 year fixed rate mortgage. Now, I’m not sure exactly when, “What is your best rate?” became synonymous with the 5 year fixed but that’s exactly what has happened. Somewhere along the line, the consumer adopted the idea that the only mortgage rate worth asking about is the 5 year fixed. In fact, I would guess that most people don't even know why they are asking for it.
Now, I should note that the 5 year fixed is NOT bad, and in many scenarios it’s a great choice that I recommend to many of my clients. The problem I have, and the reason for this blog, is that to most people, they act like it’s the ONLY choice.
Which mortgage you choose is one of the biggest financial decisions you will ever make and is likely the largest loan you will ever apply for. For some reason though, getting educated on your mortgage loan options seems to take a back seat. Interestingly enough, many people will do more research on which headphones to buy, which hotel to stay at and even where to buy the best oranges, than which mortgage will best suit their financial needs.
Why is this? Well, lucky for you, I have a few theories.
A consumer hears an ad for the 5 year fixed rate on the radio, will read an about it in their favourite magazine, will see a cleverly placed ad on their Facebook page or, the big one, they see a high priced television commercial by a well known lender where they happen to be currently advertising the ‘low 5 year fixed rate’ mortgage. BANG - they know what they need to ask. No research, no problem. They know, right there and then, that the 5 year fixed rate is what they will get because that’s what is being advertised on so many different platforms. Everywhere they look, that’s what they see. If everyone is doing it, I guess that’s the right choice.
2) Parental Advice
Mom and Dad - yes guys, I’m looking at you. I’m actually doing the stare down right now. You cant see me I know, but trust me, I’m doing it. Parents, no matter their occupation, give financial advice to their children that, let’s be honest, they aren't always qualified to give. Now, I realize parents have likely had or have a mortgage, so they do have some experience. However, mortgage rules are constantly changing and without being an industry expert it’s difficult to stay on top of the new rules and how they apply to each individual situation. Gone are the days where you were offered an 18% rate. It’s 2018 and ‘it’s a new day baby’. Especially in the past 4 months when the mortgage financing approval process has become very, very difficult.
A fear that they will look uneducated if they ask too many questions. A fear that the mortgage professional will view them differently and take advantage of them for not understanding mortgages. I’d like to dispel this myth here and now. That is our job. We are the experts in this particular field. We won’t see your lack of understanding as a weakness and we encourage you to ask questions so you can make an educated decision. The client’s thought seems to be, If you walk in confident knowing they want a 5 year fixed, then the professional can’t “sell” them anything else. This is not the case. Far from it.
These are my theories. The most important takeaway here is that you need to understand your options. I encourage you to ask questions and explain your goals and future plans so that you can ensure you have a product and term that works for you today and for your future plans. What term/rate/product your friend or your parents have has nothing to do with what you need. Everyone has a unique situation so it’s very important to be educated and ask questions. Perhaps leave “what is your best rate” out of those questions, though. Well, at least until you know why you’re asking it.
Now, that we sorted that out, will it be a standard mortgage charge or a collateral charge mortgage today?
Maybe that’s a blog for another day……