Need to save money on your mortgage

Mortgage interest rates (taux hypothecaire) seem to be the name of the game in the lending market. All of the mortgage company ads seem to scream "Lowest rates in town!" lenders fly gigantic banners outside their branches advertising that they have the lowest rates of anyone. Yet, despite this emphasis on interest rates made by the banks and other lenders (and by consumers, who are unduly influenced by these ads), in reality, interest rates do not have that great an effect on the overall cost of a mortgage loan. The truth is that rates don't vary all that much; the difference only ranges about .06%. That means on a $100,000 mortgage you could save $41.12 a year by shopping around.

Is it worth all of the time spent on calling various mortgage brokers (courtier hypothecaire) and researching on the internet to achieve such a paltry savings? No. If you calculated the time spent shopping around for a rate at your per hour wage, you would find you spent a lot more than the $41.12 average savings! In fact any real savings on your mortgage is not going to be made by shopping around for hours and hours looking for the lowest rate. Let's face it, all of the bankers will know your credit rating; they are all going to be looking at the same factors and therefore the rates each of them quotes will be in the same narrow range. Determining interest rates is just a function of the risk/reward ratios that bankers analyze. Since they all use the same analysis techniques, you cannot expect the rates to be grossly different. (Don't listen to your neighbors. Anyone who boasts that he got a dramatically different interest rate than you were able to obtain either has a much more favorable credit rating, or is lying.)

There is a more important factor to look at. Instead of solely relying on obtaining the lowest interest rate, a mortgage borrower should be concentrating on following the correct "mortgage strategy". There are various mortgage strategies that are out there, from fixed to adjustable rate loans (taux hypothecaires), balloon loans or prime rate based loans. Working with a mortgage lender who is knowledgeable about the markets, looking at yield curves and who studies your individual situation to devise the perfect mortgage strategy for you is going to save you a great deal more money over the life of your home loan. It can probably save you tens of thousands of dollars in total mortgage costs, rather than less than $100 per year.

Why do banks only talk about interest rates when there really isn't that much of a difference between rates? Because that is the easy way to attract borrowers. Developing an entire mortgage strategy for a customer takes a lot more in terms of understanding and analyzing markets, mortgage products, individual needs and a host of variables. Many bankers and mortgage brokers have neither the time nor the expertise to perform this in depth services for their customers.

By: Gregory van Duys