For almost 30 years, Greater-Toronto-based mortgage broker Paula Roberts has worked to educate homeowners about the benefits of viewing their mortgage as one part of an overall financial plan. “It’s about being comfortable with that monthly payment, even when rates change,” she says. “For us, it’s really about helping our clients see their homes and mortgages as part of a much bigger picture – all their goals and dreams for their lives.”
As a result, new clients to her practice today are usually the adult children of earlier clients, she says. “We’re not transactional; we aim to work with our clients over their lifetimes. If a client comes back to me in three years and says, ‘I don’t like my neighbours,’ or, ‘We’re pregnant and we need more space,’ I don’t want to have to say, ‘Listen, sorry – remember we got you that really low rate? Well, you can’t move now without paying a huge penalty.’”
In general, says Ms. Roberts, Canadians tend to focus too much on rates and too little on other mortgage features such as flexibility. She points to situations she’s experienced in which a monoline lender’s attractive rate has been matched by a client’s “Big Six” bank. The combination of a more familiar brand and a low rate seems irresistible until the clients learn that the penalty they’d face if they have to pay the mortgage out early could be thousands of dollars higher at their bank. And while most homebuyers believe that not much will change in their lives over the term of their mortgage, statistics show the opposite is true.
“We typically do a five-year term, but over 80 per cent of borrowers will refinance or change their mortgage in the first five years,” says Ms. Roberts. “They may accumulate debt, change jobs or outgrow their home. You can’t predict that you’re going to be pregnant with twins in three years’ time – there are lots of things that can happen.”
It also makes sense to treat mortgages and real estate within our financial plan the same way we treat our investments, says Jeff Spencer, vice president of retail sales at Manulife Bank and Trust. “Real estate is an investment, and a mortgage is a form of a savings vehicle. Normally, investments and savings vehicles are diversified, so when someone comes to us to talk about a mortgage, we’re looking to make sure that they have the right diversification.”
Manulife One’s customized product design starts with affordability and payment flexibility, but it also includes minimizing interest rate risk, he stresses. “For someone with a low risk tolerance for rate fluctuation, we might be looking at a laddered approach such as five different fixed-rate subaccounts with one-, two-, three-, four- and five-year terms. Whenever they renew, they can buy a five-year term to maintain the ladder. It’s a little more complex than what most Canadians are used to, but it provides short-term savings in interest costs and takes away some interest rate volatility.”
Advertising feature produced by Globe Content Studio. The Globe’s editorial department was not involved.