First let's define what we mean by the “best rates” and the financial value that we can attach to shopping for the best rates. The best rate is the best mortgage rate available for you by any lender.
The advent of super mortgage brokers and the Internet has forced the mortgage industry to become very competitive. Each lender has his best rate and most of the time it's within 0.06% of the rates of major banks. Shopping with a mortgage broker makes this easy.
The financial impact of getting a better rate of 0.06% on a 100,000$ mortgage is 1028$ over 25 years or 41.12$ per year. That is not what I call super savings!
Something better than the Best Rate
Dr. Milevsky at York University (Toronto, Canada) published a stunning report. He compared two mortgage strategies between 1950 and the year 2000 and found that:
• 88% of the time one strategy was better (money saved)
• the average savings was 22,000$ on a 100,000$ mortgage amortized over 15 years.
Now we're talking. Saving 22,000$ in 15 years, that's 1466.66$ per year. It's not hard to see that choosing the right mortgage strategy is a LOT more important than simply shopping for a better rate.
The real conclusion of the study is not that one mortgage strategy is always better. It's not! The lesson is that choosing a strategy is very important.
[Note: the conclusion of this study is applicable for Canadians and Americans. The interest rates during 1950 and 2000 are very similar and the different strategies are available in both countries.]
What should you do?
Selecting the best mortgage strategy is not as simple as calling around for the best rate. You need to:
• analyse your situation and your long term objectives
• analyse the current interest rates and where they are likely to go in the next 10 to 15 years.
• choose the best strategies based on that information
I suggest that you take the time to find a mortgage broker that does more than shop the mortgage rates for you, but a broker that will take the time to set up a plan to save you money over the entire life of your mortgage. Once you have found a good broker, ask him to present you with 3-4 strategies and his recommendations.
