1.99% eh? What is the Real Story?
Much video has been created and ink spilled on this topic. Here is a Summary.
- 99.9% of clients should not consider entering into this mortgage.
- We will not be applying to place any of our personal properties into this product.
This is for the 0.01% of you still reading past bullet point #1 above. 🙂
Investors Group has created a shiny thing (1.99%) wrapped around a potentially painful hook which you will not like the final outcome of.
Yes the rate of Prime – 1.01% (net 1.99% currently) sounds fantastic and it would be save for the following;
The payment is based on their 3 year posted rate of 3.75%.
Balance P-.50% payment P-1.01% Payment
$100.000 $394.45 per month $461.47 per month
That ~65.00 per month difference per 100K of mortgage balance adds up fast for many.
Sure the extra dollars are going to principle help hedge against a rise in Prime, both great things. However if a client prefers flexibility, or if that client wishes to qualify for additional financing to purchase investment properties, this higher payment on their residence can become a serious impairment.
I prefer that my clients make an increased payment, but at their own discretion with the option of reducing it when leaner times hit, or when qualification for additional investment property financing plays a part in their lives.
This mortgage is also not available for clients with less than 20% equity or down payment.
There is also an arguably restrictive ‘bonafide sale clause’ wherein the mortgage is simply unbreakable in any case but an ‘arms length’ sale. This one strikes a nerve with myself personally as my wife and I did in fact sell one of our homes to a related party, my Aunt and Uncle lived in that home for 15 years. A legitimate sale which would not have been accepted within the confines of this mortgage product.
The mortgage is not ‘portable’ to a new property should you in fact have a bonafide arms length sale. Instead you are stuck paying either the 3 month interest penalty, or in a radical departure from standard variable rate policy – potentially an Interest Rate Differential penalty which could be five times as much. i.e. $3500.00 per 100K as opposed to $700.00 per 100K
Need to access additional equity during the term? Too bad, you are locked into that single mortgage balance for 36 months. No refinancing allowed, not even with the same lender.
Want to lock in to a fixed rate at some point? Yes, but now one finds themselves in the arms of a lender (IG) typically a solid .50% above all other lenders. Not too exciting of a ‘safety net’.
This mortgage is also registered as a collateral charge, the small upside to a collateral charge mortgage pretty well vanishes with a lender as restrictive as IG.
In short – a stack of downside.
I am not considering this product for my own financing needs, and I do not see it as a good fit for any of my clients.