More and more today we are seeing a lot of incentive programs that end up luring consumers in for higher rates over the term of their mortgage. If you are trying to find the most inexpensive mortgage financing, then the most important thing that you have to consider is your net cost of borrowing. Put aside the cash-back offers, the low introductory rates, and interest free periods and take a look at the whole picture before you make any mortgage decisions.

Financial institutions know that as a new purchaser you will have to outlay a lot of your hard-earned money in order to fulfill the dream of home ownership. The idea of cash back, low introductory interest rates or an interest free period preys on the consumer’s need for additional cash flow around the time of a home purchase. Before you jump on this opportunity to minimize the burden on your budget for the short-term, take the time to consider what will benefit you most over the long run.

By taking advantage of these incentive programs consumers generally lose their ability to command a rate discount. If the incentive program that your are considering is not delivering the equivalent of 0.75% rate discount then you should definitely stop and re-consider.

Lets take a simplified look at the offer by some financial institutions to give you 2% off posted rates for the first year of a 5-year term. The agreement here is that your mortgage rate will return to the posted 5-year bank rate once the first year is done. Lets assume for the purposes of this example that the posted bank rates are 7.75%. In column A we have a 1% rate discount, in column B we have a 0.75% rate discount, in column C we have a 0.50% rate discount and finally we have the low introductory rate offer:

As you can see from above, even the half point (0.5%) rate discount ends up having a lower cost of borrowing for the consumer. Don’t sign up for one of these tempting offers unless you truly understand the implications to your cost of borrowing. Find a financial professional who can give you a non-biased analysis of how the incentive program will effect your overall mortgage repayment schedule.

Find out whether the mortgage representative that you are dealing with represents you, or the financial institution(s) they sell mortgages for. A representative that works for one financial institution will be hard pressed to give you non-biased advice. When was the last time you went to a bank that told you another bank had a mortgage better suited for you? Get informed and make your mortgage decisions wisely.

Until next time – best of luck in finding affordable mortgage financing and your new home.