Looking back 5 years.. which mortgage product did your Banker recommend in 2008?

Remember 2008?  It was almost 5 years ago that the U.S. sub-prime mortgage scandal erupted.   October 2008, to be exact.  That’s almost 5 years ago…  And with October and November 2013 renewals being less than 120 days away, we can now lock in some rates for those upcoming renewals.  So I thought this would be a great time to see what sort of advice and recommendations the Banks were giving to their mortgage customers.

THE BANK’S ADVICE

The funny thing is, Banks have never changed their advice or strategy.  ‘Take a 5 year fixed rate’.  That’s all the Banks seem to want to promote.  And with good reason… it’s the most profitable product FOR THE BANKS.   But historically, it’s NOT the best product to take.   There is no historical data that I am aware of that shows taking a 5 year fixed is the best strategy.  But I’ll get into that in more detail later.

Let’s return to the original question.  ‘Which mortgage product did your Banker recommend 5 yrs ago?’  If you said 5 year fixed, it was absolutely the worst product to be in!   Fully discounted 5 year fixed rates were hovering at around 5.50%!   Can you imagine paying this rate every year for the last 5 years??? … when we had record low interest rates between 1.35% and 2.79% during the last 4 years!?!!

Ok, I don’t mean to rub it in, but I’m trying to show you that getting into the wrong mortgage product is far more costly than trying to get than extra 0.05% off your rate… some of you might be thinking it’s easy to look back and criticize.   That’s true, so I decided to put myself through the same test.

MY HISTORICAL RECOMMENDATIONS VS THE BANK’S RECOMMENDATIONS

So what was I recommending in 2008 and 2009?  My recommendations are all on record going back to January 2005 through my website at http://www.mortgagenow.ca.   Just click on this link for the archived Market Trends reports.  I’m going to focus on the summer of 2008 and into the spring of 2009 for today’s purposes but feel free to look at all of them if you want to compare…

During those uncertain times, I made what were considered to be, very bold, yet clear recommendations NOT to take a 5 year fixed.  In fact, my advice was to take a short term fixed rate or go into a Variable rate product.  I specifically said that interest rates were more likely to go down, and not up during times of economic trouble.   And I also said to beware of phone calls from your Banker or Lender offering any special or incentive to take a 5 year fixed rate..  This is all on record.

Sure enough, my recommendations were right on.  It was absolutely the right strategy.  My warnings were correct.  And even later, during 2010 and 2011, I was recommending that those with Variable rate mortgages to NOT lock into a fixed rate…  Most Bankers and so-called experts continued to push 5 year fixed rate…   Once again, my advice and strategy were correct.  If you aren’t sure about how much this cost or saved you, I’ll give you some real numbers… A $300k mortgage would have cost you at least 2.00% during the last 5 years if you took a 5 yr fixed rate… that’s roughly $25,000!   My clients saved that $25,000.  Did you?

THE LESSON TO BE LEARNED

News flash….The Banks aren’t your best friend.  They are a business.  They earn their profit from you.  From the fees you pay..from the interest you pay….from the inflated penalties you pay.    It’s that simple.  Once you understand this, you can begin to seek out unbiased and market neutral advice.   A Mortgage Broker works for you, not the Banks.    Seek out an experienced and qualified broker.   Check out their historical recommendations.  See if they have a proven track record of offering the right advice.

By the way, not all mortgage brokers are great…. I have seen several, high volume mortgage brokers recommend the wrong products… One broker, who shall remain nameless, is infamous for recommending 10 year fixed rates to his clients for the last 10 years… Are you kidding me?  10 year fixed rates have only been a good option twice in the last 20 years.  Absolutely the wrong product!  And a few other brokers seem to be jumping on the bandwagon of just advertising the lowest possible rate, selling it, without regard for the actual terms, conditions, penalty calculations that are associated with those products…  These broker’s clients will end up paying a hefty price when their clients start to refinance or want to exit the mortgage early…

A mortgage is more than just a rate…..

Your best interest is my only interest.

As always, I welcome your comments, calls and questions.

Steve Garganis 416 224 0114 steve@mortgagenow.ca