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Mortgage Rates

Vancity Saver’s Mortgage: Why the lowest rate isn’t always best.

If you are like many mortgage consumers you have probably searched the internet at various lenders looking for the “lowest rate“. While rate is definitely important I wanted to shed some light on how basing your decision on just “lowest rate” isn’t always the best for your personal situation. While many people are initially attracted to a mortgage rate that’s 10 bps or more below other rates in the market, many clients don’t realize that those low rates typically signal a product that is either “No Frills” or include other terms and conditions that are required to be met before a client receives the advertised rate.

In the mortgage market in British Columbia the absolute lowest 5 year fixed rate mortgage is 3.64% from Vancity and is called the Vancity Saver’s Mortgage. What many clients are surprised at is when you discuss the fine print and the conditions in which you must meet before you can obtain the lowest advertised rate.

To qualify for the Vancity Saver’s Mortgage you must make a minimum $50/month contribution to a Vancity non-registered savings account, and enrol in two other eligible Vancity products (RRSP, Credit Card, Chequing Account, GIC’s etc) to qualify.

While I do encourage saving I wanted to use this post to show how you can actually pay down your mortgage faster by choosing another lender even if it is a slightly higher interest rate.

[*In this example I’ll base the calculations on a mortgage of $200,000 with a 25 year amortization]

  • Vancity Savers Mortgage: 3.65% – Payments $1013.38 + $50.00 Savings = $1063.38/month
    Outstanding balance after 5/years $172,999.50
  • Full Featured 5/yr Fixed: 3.79% – Payments $1029.40/month
    Outstanding balance after 5/years $173,465.22
  • Now assume that instead of saving an extra $50.00 in a non-registered savings account required by Vancity and instead use it to increase your regular monthly mortgage payment to match what your total monthly commitment with Vancity would be to the lender with the slightly higher rate.

  • 5/yr Fixed 3.79% – Payments $1063.38/month
    Outstanding balance after 5/years $171,226.00
  • You can see how now you have actually payed off more of your mortgage even with a higher interest rate!

    Not only is your balance $1773.50 lower but because of your increased payments your amortization is now 18 Years 9 Months upon renewal compared to 20 years with the Vancity Saver’s Mortgage.

    Also with this calculation you also don’t have to commit to signing up with two other Vancity products when you may be perfectly comfortable with the services offered by your current financial institution.

    Just one example on how the “lowest” rate isn’t always the “best”, but depends on your own personal situation.

    If you have any questions about the Vancity Saver’s Mortgage or any of the other mortgage products on the market that may be better suited to you don’t hesitate to contact me by any of the methods below or leave a comment.

    Phone: (778) 668-9320
    Email: [email protected]
    Twitter: @sdd