As you have come to realize over the last few years, mortgage lenders all offer the same rate, for the same term, at any given time.  For the Consumer, lack of choice has rendered the market mundane.  Mortgage lenders still must attract new Clients in order to meet expectations.  How does a mortgage lender attract these new Clients, if their rates are similar? Gimmicks!

Gimmicks abound in the advertizing maze thrown at you by these lenders.  The newest trend is for the lender to offer cash (called a cashback) to the Consumer for taking some kind of medium to long term (5-7 years or longer) commitment.  This commitment will most likely be at the lender's posted rate.  This cashback is rarely a good deal for the Consumer, although from the advertizing, it sounds like a great deal.   Imagine receiving 4-5% of the mortgage amount back from the lender on day of funding.  "We sure could use that kind of money to payoff other debt, or to renovate the kitchen!" There is a catch to the offer.  If you were to sell the house, or payoff the mortgage prematurely, the whole amount of the cashback becomes due and payable back to the lender.  Let me put this into proper guise.  The lender is offering you 4% to take a five year posted rate.  If you negotiated properly, you would certainly get 1% off the posted rate with no gimmicks. If you were to choose the lower rate, 1% off over 5 years is indeed 5% off over the term. Had you chosen to take the lower rate, paying off your mortgage prematurely has no impact on the discount you received from day one.  As a matter of fact, the lower rate would probably make it easier to sell your house, and have the new owners assume the remaining mortgage.   Other lenders offer a very low rate during the first 3-6 months of a long term deal, then the posted rate for the remainder of the term.  These lenders are banking on the fact that especially first time homeowners have a very tight cashflow at the beginning.  Offering a ridiculously low rate and payment may indeed attract some attention.  The problem with that scenario is that eventually, the posted rate (reality) will come into play.  The payment will go up substantially and potentially choke the new homeowner. Again, it is better to negotiate a full discount for a minimum five year term at the onset.  Get used to that payment, and try over the next 5 years to increase the amount of the payment, if you can.  By locking into a long term contract with the lender at a discounted rate, at least you know the payment is secure for the foreseeable future.

Still other lenders offer a variety of long term deals with short term rates.  A major lending institution has bill boards offering the Consumer a low rate of interest, with a caption to visit the nearest Branch for details.  The details will announce that the rate of interest will float over bank Prime.  In other words, the rate of interest is dependent upon the market rate at any given time.  If bank Prime goes up, so will your mortgage rate.  The real problem with this type of mortgage is obviously the rate is not fixed, but even worse is that if the rate goes up, during your stay with this lender, your payment will not go up unless you ask it to be increased. In other words, if the rate goes up a couple of times, theoretically, your payment may not even be covering the interest on the loan, therefore, even as you are making your payment, the principal balance on your loan make be going up instead of down. 

You have also noted over the last few years that Mortgage Matters Inc. and other mortgage brokers, have consistently offered long term rates at a discount of 1% or more.   These mortgage brokers get their mortgage money from the same sources that are trying to attract you directly, the Banks, Trust Companies, life Insurance companies and Mortgage Companies.  Why do these mortgage brokers have better rates?  They negotiate up front with the lenders, to offer clients that these lenders would not be getting, but in order to get the client, the lender must discount the long term rate by 1% or more, with virtually no strings attached for the Consumer.  Not only will the Consumer get a great rate for the entire period, in most cases, the lending institution will also pay a commission to the mortgage Broker who did up all the paperwork.