2.89% 5yr fixed rates are available… but are those offers legit…?

You’ve heard the saying, “there are no free lunches”…. or “if it sounds too good to be true, it usually is”.…  I’m not sure how these sayings got started but they probably came from a bad experience…  My favorite is, “the problem with things that are free, is that they cost too much”.…   These sayings can be applied to most things in life…   including your mortgage.

Recently, I’ve seen a growing number of websites and radio ads offering these so-called “great mortgage products” at 2.99% and now 2.89% for 5 yrs… A number of readers have asked me if these offers are legit?  Here’s what I tell them…. Hope you find this useful…

In short, the rates are real but the product offerings come with too many strings attached for my liking….. things like the rates are for CMHC insured mortgages only… or the rates are only held for 30 or 60 days….you can’t pay the mortgage off for the first 3 years…. limited prepayment privileges…..prepayment penalties are far higher than other mortgages….you lose your ability to negotiate a rate if you have to refinance the mortgage.

These product have, and can, end up costing you more in the end.   This is why you won’t see me promoting or advertising these rates.

A CLOSER LOOK AT WHAT THESE PRODUCTS ARE ABOUT

In trying to capture market share, some Lenders have created products with slightly lower rates… Ok, I like that part of it…. BUT, they come with inferior terms and restrictions…… and this is where you could end up paying big time, on the back-end of these mortgages.    You’ve seen my previous articles about $20k, $25k, and $30k in mortgage penalties….. This is what makes these products and other NO FRILLS mortgages a bad option…and why I refuse to endorse them.

Let’s face it, the first thing most of us look at is the price… If I said you can buy and iPad for $200, or a 65″ Plasma TV for $500, you would keep listening… In the case of mortgages, we look at rate… 2.89%….  But hopefully, you keep asking questions.  9 times out of 10, you would probably find out there is a catch….. Maybe you have to buy something else, or the make and model is older or of a very poor quality, or the sale was only for a limited time, or it’s a refurbished model, etc….  You get the picture…

In most cases, those offers are just bogus.   The headlines are there to catch our attention… They want to entice you…to get you in the front door or to make that phone call, or to click that link on your computer….The seller is hoping that either 1 out of 10 will not ask too many questions and take the product… or they will shift you into another product… The old bait and switch….  That’s how most of this type of advertising works.  It’s a numbers game…

And it isn’t any different with mortgages.  But the problem with mortgages is that we are talking about a very complex financial product.  A mortgage is a loan agreement, a legal contract that will bind you for 5 years, in most cases.   The loan is secured by your house.  Think about that… You are putting up your home as security… you better understand all the terms, obligations, limitations, restrictions, privileges….. most importantly, look at how much it will cost you to exit this product.

Here’s where I have a BIG problem with these flashy ads….  in most cases, the borrower doesn’t even know what questions to ask…  They can’t get all the required info in order to make an informed decision.     We saw a great example of this earlier this year when BMO offered their 2.99% NO FRILLS mortgage… only, they didn’t market it that way… they called it a Low-rate mortgage…   Quite a play on words.  They made it sound like they were doing us a favour by pushing people into these mortgages… but as my readers know, the limitations to this product can and will prove costly for a large number of borrowers….  which is why I gave that product a huge thumbs down.

For those seeking my opinion and advice, I suggest you take a good hard look at these offers…. ask questions…. you’ll probably end up being part of the “9 out of 10 group” that asked too many questions and saved themselves from a mortgage disaster.

Should you need my help or advice, feel free to contact me anytime.   steve@mortgagenow.ca or 416 224 0114.

Steve