“Clients will be forced into taking a renewal or having to switch their mortgage out at that time based on where rates are and we don’t know where rates are going to be in 18 months,” Matt McKillen of Mortgage Architects
told MortgageBrokerNews.ca. “My strategy is trying to keep my clients’ cost of borrowing down as low as possible for however long they own their home, but generally one or under-two year terms don’t make sense.”
McKillen, a Toronto-based broker, has had a few clients inquire about Meridian credit union’s recently advertised 1.49 per cent 18-month fixed-rate product, but he hasn’t encountered any serious interest among them.
Especially when he explains the overall cost to the borrower if rates increase in the next year.
“What I generally tell clients … is that number one, it’s more of an acquisition tool for [Meridian]; they obviously aren’t making any money on that rate, which is why it’s only on offer for a limited time,” McKillen said. “If it’s all just about rate, when are you going to do in 18 months if rates are higher and you’re going to be in a market where you’re forced into whatever they offer you on a renewal or are you going to set yourself up for a higher yield for the remainder of that three-and-a-half years versus getting into a low five-year term now.”
Meridian made headlines when it announced the promotional rate, which is being advertised as the lowest posted mortgage rate in Canadian history.
However, when asked the specific criteria for qualifying for the rate, a Meridan spokesperson told MortgageBrokerNews.ca that “we can’t disclose specific details of our lending process, consumers interested in obtaining this mortgage rate must be in good standing and meet all of Meridian’s standard lending criteria.”
Some brokers are pointing to real concerns for those borrowers opting for Meridian’s 1.49 per cent offer – their objections having little to do with personal concerns about the lender’s sales strategy.