First and foremost, if you have a mortgage with any of the big banks, you have a posted rate on your contract and it SUCKS!
What is a posted rate? It is a financial strategy banks use to trap clients into paying a large sum of money when they have to break their contract.
When you walk into one of these big banks to talk about a mortgage, the “specialist or advisor” you are meeting with is not a “licensed mortgage professional”. They are trained and limited to sell the bank’s products only. They don’t know and can’t offer you other products. They don’t have your best interest in mind because they have high quotas of sale to meet, and managers pushing for productivity.
When you sit down with these “mortgage specialists” they will offer you a rate that will be hard to find anywhere else. You will walk away happily thinking that because of your good relationship with the bank, you were offered a low rate.
The problem is your payment was calculated on the “discounted rate”, but your contract rate is based on the “posted rate”. So, if you need to break the contract, that’s when you will see the posted rate in action. You’ve probably heard people saying that they’ve had to pay thousands of dollars in mortgage penalty. This happens because the bank calculates your penalty on the posted rate when you break your contract.
Do you know why the lowest rate is offered on the fixed rate 5-year term?
Studies show that on average, Canadians are more likely to break their 5-year contract on the 3rd or 4th year for any reason; whether it be to sell their home to buy something bigger or smaller, take out equity to pay debts or put their kids through college. Banks use this pattern to offer a good fixed rate for the 5-year term because they know there is a good chance you will break the term and that is where they make the most money. An average penalty on a 5-year fixed term on a mortgage of 400,000.00 could range from $8,000.00 to $17,000.00 depending on the terms of your contract.
Now, you may ask, what about a licensed mortgage professional? These individuals are self-employed and while they rely on your business to bring food to their table, their brand and reputation are what drives their success. Independent licensed mortgage brokers build their business on retention and renewals. The only way a client will continue to come back to that mortgage broker is if they felt like they were getting the best deal and were treated fairly. That is why an independent mortgage broker will work and fight for you, read your contract, get rid of traps and offer you the best deal out there because they don’t have to serve the interest of any bank.
Shop around, ask questions, negotiate the terms and educate yourself.
Your house is your biggest asset but is also your biggest debt; you should really understand your contract.
Educate yourselves about Canadian Lenders. They are wholesale banks that have the best rates, the best contracts and likely no posted rate. The rate you get at your payment is your contract rate. If you have your mortgage with one of these lenders and you need to break the contract, you will pay significantly less penalties in comparison to the big banks.
These lenders, however, can only be accessed through a licensed mortgage professional and I don’t know if you know this but there is no cost for you to have a professional mortgage broker working on your behalf. The lender pays the mortgage broker, not the client.
I hope this article helped you to understand what a posted rate is. You can email me at email@example.com if you have any questions firstname.lastname@example.org