(Newswire.net — June 9, 2013) Surrey, BC — Up to 60% of Canadians who lock into a 5 year fixed mortgage break the contract leading to unnecessary penalties. The industry statistics show that of those 60%, the average term lasts only 38 months.
Mortgage Brokers, during first contact, face the benchmark question “What is your best 5 year fixed rate?” A Mortgage Broker from Maple Ridge, Kris Grasty has recently posted a blog with some compelling arguments against the 5 year fixed mortgage.
When asked about the post, Grasty stated that “It is not to say that a five year fixed term is the enemy. It’s more about the fact that everyone has been pre-programmed by the lenders to seek a 5 year fixed term and they in turn assume that it suits most people.”
“When I first heard of the 38 month stat, I didn’t believe it so I applied it to my own experience.” Grasty goes on to prove that the statistic indeed hit closer to home. “The bottom line is that everyone’s situation is different, requires different terms, strategies and options. The fact that so many people end up having to pay these mortgage penalties simply proves that most mortgage clients need the services of a Mortgage Broker”.
Mortgage Brokers have only 25% of the market share across Canada. Could this be the explanation that so many Mortgage shoppers are lead astray? Grasty clarifies stating that the big banks are not really doing anything wrong. “This is a business and the banks need to make a profit and are accountable to their shareholders”. He laughs “I like to compare it to Vegas…the house always wins. You break your contract mid-term and the lenders protect profits through the mortgage penalty structures.”
As the conversation steers to Penalties, Grasty points out that every lender is not created equal and the penalties are not either. Some banks calculate an IRD (Interest Rate Differential) based on the posted rate the date the contract was signed, as opposed to the discounted rate that a client really received. As an example, today you could walk into a bank and be offered a discounted rate of 2.89%, while the posted rate is 5.14%. Your penalty could be calculated using the posted 5.14%! Indeed, a mortgage shock.
“So when I talk to clients who want the cheapest 5 year rate, I like to first ask them why, just to confirm their motivation. Second, I like to point out that the cheapest 5 year could cost them thousands more in the end. Hey, don’t get me wrong. For some situations the 5 year product definitely serves a purpose. It is interesting to me, though, that the 5 year term just so happens to be the banks’ most profitable products.” Grasty’s post is an interesting read and can be found here: Is a 5 year fixed mortgage term really for you?
After speaking with this newer broker, it is clear that there is no real hard sales pitch. There seems to be a keen interest in providing his clients with the real numbers. “At the end of the day, it is my job to educate clients and to help coach them through the mortgage process. After all, we are talking about their largest investment in most cases. It just makes sense to empower the client to make an informed decision.”
About: Kris Grasty is a fully licensed Mortgage Broker with DLC Canadian Mortgage Experts and a member of the Mortgage Broker Association of BC (MBABC).
Contact:
Kris Grasty
DLC Canadian Mortgage Experts
#501 – 17665 66A Ave Surrey BC V3S 2A7(778) 878-7787
krisgrasty.ca
krisgrastry@gmail.com
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