Mortgage 101 – The Rate Not To Take | Monday, October 9th

In this edition of Mortgage 101 Clinton Wilkins and Todd Veinotte discuss the intricacies of mortgage rates, offering insights on what NOT to settle for and why the lowest rate might not be your best choice. They also discuss variable rates and Clinton sheds light on who should consider this option. Plus, as the demand for mortgage wisdom continues to rise among homebuyers, Clinton and Todd explore the surge in homebuyer curiosity and why the 3-year fixed rate is the most popular rate right now.

The lowest rate is not always the best

Todd Veinotte 00:00
Boom. You’ve been foreshadowing this all show long. So when are you going to reveal the rate not to take?

Clinton Wilkins 00:13
I’ll tell you right now what rate you should not take. Historically, Canadians love a five year rate. Right now. Don’t take that five year fixed.

Todd Veinotte 00:23
Don’t take that five year fixed.

Clinton Wilkins 00:25
Don’t take it. Don’t take it.

Todd Veinotte 00:26
Don’t do it. No matter what.

Clinton Wilkins 00:28
You know, the only people that should be taking it Todd are the ones that absolutely cannot take any other product. Like you can only be approved for this five year fixed.

Todd Veinotte 00:38
Why would that be?

Clinton Wilkins 00:39
Because it’s the lowest rate. People just are like, I don’t know, what is it a bug to the light? You know what I mean?

Todd Veinotte 00:45
Drawn to the light. A moth.

Clinton Wilkins 00:48
A moth to the light. Okay, we’re getting there. We’re getting there. Some people love the lowest rate, the lowest rate is not always the best rate. So just remember this lowest, not best.

Todd Veinotte 00:59
Why? Explain why.

Clinton Wilkins 01:00
We are just so trained, to say lower is better. Lower is not always better. And I think in this case, it is not better.

Todd Veinotte 01:09
Okay well tell us why.

Clinton Wilkins 01:10
Five years is a long time. Rates are high across the board, it doesn’t matter what rate, what rate product you’re taking, doesn’t matter if it’s variable, fixed, one year, two year, three year, four year, five year, ten year, seven year, whatever. They are all high. Five years is a very long time. A lot of things change in people’s lives in five years. I think the rates are gonna be different in five years. And if you break that mortgage early, you’re gonna pay a hefty hefty penalty, especially if you break it midterm and the rates go down. You know what, and I think that’s one thing that you really need to think about. People like to set it and forget it. For those people. Maybe that’s okay. But I think you will likely be unhappy with your choice in two or three years. Because I kind of, what I’m feeling and what I’m seeing what I’m reading is, you know, in two years, two and a half years, three years, the rates are going to be less. And it’s really a commitment when you take a fixed rate. When you break a fixed rate mortgage early Todd, you’re going to pay a penalty of either three months interest, or an interest rate differential, which is ever higher. The bank is like the casino, they don’t lose.

Todd Veinotte 02:30
Okay, so bank renewals when you get that renewal in the mail. A lot of people don’t even open the mail, they don’t even know they renewed for goodness sakes.

Clinton Wilkins 02:36
They don’t even know that got a renewal.

Todd Veinotte 02:37
Right? Is that is that typically a five year renewal fixed?

Clinton Wilkins 02:42
Some lenders will just come out and say, here’s your five year fixed. Here’s your five year variable. Here’s your open term, here are the three choices. If you want a different rate, you can give us a call. Because these are the most common terms that people take. And so many people just take what they are offered.

Todd Veinotte 03:02
Or they don’t even know like you said.

Clinton Wilkins 03:03
They don’t know, they’re just like, I’ve always done a five year fix done, check, send, initials signed, send it back. We really, really need to ask the questions, you need to seek the advice of an unbiased mortgage professional, and you need to act early. We typically start getting in touch with our clients six months before renewal to talk about the strategy. What type of product do you want? What’s changed in your life? Ask them a couple questions. But we really start going on the file 120 days prior, that’s four months prior, we start working on a file, because we can secure a rate four months prior. So it’s really important that we start and in this business, and right now, time is money. Because in the in an increasing rate environment, you know, a day can make a difference in terms of securing a rate and making sure we have something secured that’s going to work for you and for your situation.

Homebuyers are seeking information

Todd Veinotte 03:55
I think though, ironically, through all of this, that people are probably more educated when it comes to mortgages, because of the rough ride of the Bank of Canada. And they’re seeing it in the news. They’re hearing people talking about it, they’re probably becoming more engaged. Because let’s face it, if you’ve never had a mortgage, why would you know about this stuff, but a lot of people are probably now becoming more engaged in this because of the news.

Clinton Wilkins 04:18
They are 100% more engaged. And I can tell you people are listening to our show. And they’re listening to our podcast, and they’re listening to our social media. Because people recite it back to me, they’re like, well this is the advice that you gave. I said, yes that is the advice that I gave. In some situations, the advice changes. And in some cases, the advice doesn’t work for this person specifically, but it’s amazing people are becoming more and more educated. And you know what, I love it. I love when a borrower A knows what they want. Or B, say I’m thinking about this, let’s talk about my situation and does that work? Because you know what? It makes it more fun for me to because I think sometimes when you’re just doing the hand holding and people are just so so nervous. That can be challenging too. Because then I’m almost like, okay, if they’re so so nervous. Am I giving them the right advice? Am I asking the right questions? And I sometimes find when people are nervous, you almost take a step back and be like, okay, they need some time to think about. I think in some cases, people just need more information. And information really is power.

Who should get a variable rate?

Todd Veinotte 05:21
Are you still a, you’ve been a strong proponent of a variable mortgage for variety reasons. And you’re still in that camp?

Clinton Wilkins 05:27
You know what? I’m on that camp for some people for sure. And the difference between where the rates are for variable and where the rates are for fixed, are getting closer and closer. Because obviously, the fixed rates have been increasing as well. The variable is right for a lot of people Todd, and I’ll tell you who it’s right for. It’s right for people who might break their mortgage early. And that’s a lot.

Todd Veinotte 05:48
Yeah. Because the penalty is three months interest.

Clinton Wilkins 05:51
Always only three months interest to break the mortgage early. It’s also right for the people that are able to take that amount of risk right now. Yes, the Bank of Canada may increase the key overnight rate more. Right now we’re in a plateau situation. Right? The Bank of Canada did not increase the key overnight rate when they met earlier this month. And many economists think we’re in a plateau now going forward. Now the Bank of Canada did say, if Canadians start going out and start spending again, they have no problem at increasing that key overnight rate. So variable is right for a lot of people. And it’s right for people who might want to take it and also potentially convert into a fixed rate down the road. The most popular rate that we are seeing right now, we need a little drumroll. Sure. Okay, that’s Todd’s drums. Three year fixed.

Todd Veinotte 06:44
Three year fixed.

Clinton Wilkins 06:45
I said this before. Three year fixed is not the lowest rate. Not the lowest. Five year is the lowest. Four year is less, three year is more expensive. Two and one year is even more expensive.

Todd Veinotte 07:00
Well, I mean, unless there’s extenuating circumstances.

Clinton Wilkins 07:02
Unless there is a reason for why you need it.

Why a 3 year fixed rate is the most common

Todd Veinotte 07:04
So the three year fixed, why is that rate where it is?

Clinton Wilkins 07:08
It’s a balance between where the rate is, and how long it is. Rate, and length. I have done more three year fixed in the last 12 months than I have in 17 years. So that’s enough to shock ya. And I’m not saying it’s just because we are recommending, we’re recommending, customers are coming in and saying, you know what, I do not want a five year even though I know it’s less, because I think the rates are going to be lower in a couple of years, let’s do a shorter term. They don’t really like the rates for one year and two year because they’re they’re high. Some of these one years and two years are like 7%. Six, you know, the three years are mid sixes, you know what I mean? You know, it’s still not a great rate. People are not happy with the rate. No one’s excited about the interest rate that they’re getting. But they’re excited about the advice that they’re getting. And they’re excited that they hope that in two, two and a half years, three years or rates are going to be less.

Todd Veinotte 08:07
And they’re always excited to listen to the show. Why wouldn’t they be right?

Clinton Wilkins 08:09
Yeah, I think they’re always excited to listen to Mortgage 101. The advice that we give, and, you know, this is, a lot of this sometimes is my opinion and my experience, and we’re doing hundreds and hundreds of mortgages a year. So for example, last year, we did over 800 transactions for you know, $280 million or so.

Todd Veinotte 08:29
Quickly, how do people get a hold of you Clinton?

Clinton Wilkins 08:31
Check us out online at teamclinton.ca/radio. If you miss some of our show, when you want to hear it later, certainly check it out anywhere where you listen to your podcasts, on Spotify or on Apple Music.

Todd Veinotte 08:42
Absolutely. Always a pleasure, my friend.

Clinton Wilkins 08:44
Thanks for having me. Todd.

Todd Veinotte 08:44
You got it Mortgage 101, your guide to homeownership with Clinton Wilkins and myself Todd Veinotte.

Clinton Wilkins 08:57
If you’ve liked what you’ve heard, and you want to learn more, feel free to visit us online at teamclinton.ca