4 Lies Your Bank Tells About Your Mortgage

When it comes to getting a mortgage, most people are pretty clueless. We’re likely to believe whatever the nice lady at the bank tells us about the whole process.

In reality, the bank does not have your best interest at heart. Remember: that nice lady at the bank works for the bank, and not for you. She’s primarily interested in padding the bank’s bottom line, preferably at your expense.

Here are some common misconceptions your banker might be foisting on you as you shop for a mortgage:

The rate

Once you’re done reading this article, head on over to your bank’s website and compare their mortgage rates to the ones one of our approved mortgage brokers offer.

I’ll save you the trouble. Often, the rate quoted by a big bank on their website is anywhere from 0.5% to up to 2% higher than you’ll find from a mortgage broker. On a mortgage worth $300,000, that means a borrower will end up paying anywhere from $1500 to $6000 per year in extra interest.

Of course, astute borrowers know the bank’s posted rate usually isn’t the rate borrowers get. Usually all it takes is asking the loans officer if they can improve the rate, and a borrower will get a rate pretty comparable to what a mortgage broker charges.

But why should the borrower have to ask? Why isn’t pricing more upfront and transparent? As far as I’m concerned, withholding information is just as bad as lying. Consumers should have confidence the price quoted is the lowest price, no matter what industry it is.

The type

It isn’t strictly bankers that are guilty of this next sin. Just about everyone in the industry will recommend folks lock into a five-year fixed mortgage rate, rather than going variable.

It’s really our own fault. Especially in today’s low interest rate world, borrowers don’t want to be stuck in a variable rate mortgage when rates go shooting up. They like the security of knowing what the rate will be over the entire five-year term.

In reality, you’ll likely be fine. According to research done on the topic, a variable-rate mortgage beats its fixed-rate cousin about 90% of the time, and the other 10% of the time the fixed-rate
loan just barely ends up cheaper than its variable-rate counterpart. There’s a reason why first-time borrowers are more likely to take a fixed-rate loan, while people who have paid their mortgage for a little while increasingly choose variable.

The amount

Just because you can qualify for a big mortgage doesn’t mean you should borrow that much. And yet, because many bankers work on a commission basis, they often suggest you borrow as much as you can. After all, it’s not usually a hard sell to tell borrowers they can afford a nicer place.

But that’s potentially a big issue, especially if interest rates head just a bit higher. Even if a borrower has locked into a fixed-rate mortgage, they still need to renew after five years, which could prove difficult if income has gone down or the rate has gone up.

Be responsible and don’t push your luck qualifying. It’s that simple.

The renewal offer

Many borrowers don’t know this, but you’re free to move your mortgage to any other lender without penalty when it comes time to renew the loan.

Knowing that many consumers don’t bother to shop around at renewal time, most banks give their borrowers pretty poor rates with their renewal letters. That’s when the bank really makes money: they’ve managed to secure a higher rate without any costs to acquire the business in the first place.

The solution is simple. Either call your bank when you get that renewal letter and ask for a lower mortgage rate, or use the opportunity to call a mortgage broker and shop around a little.