By Paul Meredith, mortgage agent with CityCan Financial.
It still amazes me just how many homebuyers go to their bank and accept whatever rate they are quoted without actually taking a look at other options that could save them thousands of dollars over the term of their mortgage. For example, let's say Wes and Annie were shopping for a mortgage of $300,000 to purchase their first home. They will find that most banks are offering a 'discounted' 5 year fixed rate of around 4.35%. With an amortization of 35 years, their monthly payment would be $1,384.88 at 4.35% had they of signed right away with the bank. Let's now compare this with the lowest available market rate for a five year fixed, which is 3.68%. For the exact same mortgage amount, their monthly payments would only be $1,266.45 saving Wes and Annie $118.43 per month or a whopping $7,105.80 over their 5 year term!
Now, this 3.68% rate is for mortgage closings within 30 days only, and comes with limited prepayment privileges of 5% per year, so it may not be for everyone, however over 90% of homeowners never take advantage of their prepayment options anyway. With a 5% prepayment privilege, they can still pay up to $15,000 per year toward their mortgage without penalty (using the above example), so does it really make sense for them to PAY that much more just to have the OPTION to pay up to $60,000 more per year towards their mortgage? While some people may have that kind of disposable income to throw around, I would say that most don't.
The best way to protect yourself is to talk to other mortgage professionals outside of your bank and explore what other options you may have. It can save you thousands simply just by 'thinking outside the bank'.
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