Mortgage loans are traditionally very safe investments. If the downpayment is less then 25% of the purchase price then the mortgage is probably insured against default through Canada Mortgage and Housing (or GE Capital). If the downpayment (or equity) is greater then 25%, then a lending institution would be hard pressed to lose money in a default situation. As a result of such a safe investment, lending institutions are bending over backwards to attract you, the Consumer, to borrow from them.

These promotions/attractants are disguised in a multitude of manners. The most popular is the cash back deal, ranging from 1 1/2% - 3% of the mortgage amount depending on the institutions and term of the mortgage. The next most popular attractant is the "fake" rate or discounted rate for a short period, followed by higher rates for the remainder of a long term. There are a few of these types of offers in the market place. Still other deals by lending institutions and home builders alike offer you "free from mortgage payments" for three to six months.

All of these plans are based on a premise that once the lender (builder) gets you in the door, the commitment period is for at least five years.  Although on the surface, there is nothing wrong (and everything right) with a five year term, the trap is sprung at the onset by getting unsuspecting consumers to agree to a higher rate for the latter parts of the term, if you agree to what seems to be an unbelievable offer at the beginning.

In all of these cases , the consumer would be far better off to choose a five year term at a full discount for the whole period (traditionally 1/2 to 3/4% off the posted rate) rather than taking "short term gain for long term pain".

If you would like an analysis of the "deal" you are being offered, please feel free to contact me through the Ottawa Sun or email bob@mortgagemattersinc.com. I will gladly share my experience and give you your deserved array of options.