February 11, 2014 nkad3

Why the Lowest Interest Rate Isn’t Always the Best

This may sound like a crazy concept, but we are just pointing out that the lowest interest rates are not ideal solutions for everyone and there are often individual circumstances that would prevent you from wanting to acquire them.


Firstly, if you notice with many low interest rate mortgages, the conditions set forth are typically the same:

  1. Closed mortgage
    1. You cannot prepay the loan amount prior to the maturity date of the loan
    2. Longer term
      1. Institutions want to ensure that a you will be with them for a longer period of time
      2. Higher penalties
        1. If you decide to prepay the mortgage, and your agreement does allows this, the penalties involved may prevent you from doing so.

Although a lower interest rate translates to less interest paid there are other factors to consider when committing to this type of mortgage, especially where the conditions can be very rigid. No one can predict what will happen in the next 5 years, but it is important to consider the road ahead before diving head first into a mortgage commitment with an enticing interest rate. Banks are not known to be generous and these low interest rates are offset by terms and conditions that can potentially set you back in the future. The most important thing to consider is the possible lifestyle changes you may potentially face and how you decision today may affect you later. If you decide that the conditions involved in the low interest rate mortgage are unlikely to affect you negatively throughout the term of the loan, then you are a good fit for this type of mortgage. However, if you can foresee the conditions to be a hindrance, then it may be worth your while to pay a higher interest rate in exchange for the flexibility in the conditions.

Canadian Mortgage Services is happy to answer any questions you may have. If you want us to help you make an informed decision based on your individual circumstances or just simply want to learn more, please give us a call!

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