Why the Lowest Mortgage Rate May Not Be the Best Mortgage

by True Wealth Advisors

When it comes to shopping for a mortgage, many of us simply look for the lowest rate. While the mortgage with the lowest rate may be the best mortgage for you, that’s not always the case. Mortgages with low rates often have restrictions, such as quick closes (your closing date has to be within 30 days) or limited prepayment privileges. Sometimes it can be worth paying a slightly higher mortgage rate for a mortgage product better suited to your financial needs.

Here are three other features to consider when searching for a mortgage.


If your goal is to burn your mortgage sooner, prepayments matter. Prepayment let you make extra payments above and beyond your regular mortgage payments. Prepayments come in different shapes and sizes, but the most common ones are lump sum payments and doubling-up your payments. Many lenders also let you increase your mortgage payment once a year.

Prepayments vary between lenders, so it makes sense to shop around. Some lenders let you make lump sum payments of 10 percent per year, while others let you do 15 or 20 percent. Some lenders let you only make a prepayment once a year, while others let you make a prepayment on any of your regular mortgage payment dates.

By working with a mortgage professional, you can choose the prepayments that work best for you.

Mortgage Penalties

You probably aren’t thinking of breaking your mortgage when you sign up for it, but sometimes life happens – you lose your job, get sick or decide to move to another city or country. Wouldn’t you rather know about mortgage penalties ahead of time, rather than being blindsided by them later on?

As I mentioned in the last post on fixed versus variable rate mortgages, mortgage penalties vary by lender and mortgage type. On  a variable rate mortgage, you’ll pay three months’ interest, but a on fixed rate mortgage you’ll pay the greater of three months’ interest or the Interest Rate Differential (IRD). With the IRD, some lenders use the posted rate, while others use the discounted rate in calculating your penalty. This can mean the difference between a small mortgage penalty of $2,000 and a big mortgage penalty of $15,000, so makes sense to know.


If you don’t enjoy paying mortgage penalties (and I have yet to meet someone who does), it helps to have a mortgage that’s portable. With a portable mortgage, you can take your mortgage with you if you decide to sell your existing home and buy a new one during the term of your mortgage. If you end up buying a home for more money, many lenders let you blend-and-extend your mortgage – you can combine your existing mortgage with a new mortgage without paying a hefty mortgage breakage penalty.

These are just some of the features to consider when shopping for a mortgage. By speaking with a mortgage professional, you can make an informed decision on quite possibly the single largest financial transaction of your lifetime and sleep well at night knowing you made the best decision.

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