The Infamous 1.99% Mortgage

You may have heard that Investors Group has recently offered a 3 year variable rate at Prime – 1.01% (1.99% for now). Although this definitely could be a good deal for some, it is important to consider the fine print before getting wrapped up in the rate. Here are a few points to consider:

·         It is a collateral mortgage which makes switching from IG very challenging after the 3 year term is up. Typically you will need to refinance in order to get out of these mortgages which means you will need at least 20% equity in your home. If you cannot switch or refinance, you will be subject to IG’s mortgage rates at the time of renewal which are typically higher than the industry standard

·         It is a variable rate mortgage which means it (along with your mortgage payment) will fluctuate with prime rate. They do give you the option to “lock in” your rate which essentially means you can convert it to a fixed rate mortgage however you are again subject to their fixed rates which are typically higher than industry standard

·         Refinances and early renewals are simply not allowed before maturity

·         You cannot break the mortgage unless selling the home in an “arms length transaction”

·         Lower pre-payment privileges

Overall, it is a very restrictive mortgage. This is a great example of short term savings that could potentially cost you much more in the long run. For example, Investor’s Group is currently offering a 5 year fixed rate 3.35% when a consumer can easily get 2.99% for a full featured mortgage through a Mortgage Broker. The rate is definitely great for the next 3 years but I would be very cautious when you want to “lock it in” or renew it.

 

It is very important to have a mortgage professional review your financial goals and risk tolerance in order to determine what products and lenders are best for you.

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