When you are looking to finance the purchase of a home, banks may offer you a discounted mortgage. At first glance, the idea sounds good: a lower interest rate in exchange for taking out other products, such as life insurance or direct deposit of your salary.
But is it worth it? Here I help you decide if it is the best option for you.
What is a subsidized mortgage and how does it work?
A discounted mortgage allows you to access a lower interest rate, but only if you take out certain additional products with the bank, such as insurance, credit cards, or pension plans.
At first glance, it seems like a good deal, as you can significantly reduce the cost of your mortgage loan. However, you must assess whether you really need these products or whether you are only taking them out to get the bonus.
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For example, if you were already planning to take out home or life insurance, the bonus may be beneficial. But if the products offered do not fit your needs, you will be paying more for something that does not provide you with value.
It is important to remember that if at any time you stop meeting the conditions of the contracted products, you will lose the bonus and your monthly payment will increase, which can make the mortgage more expensive in the long term.
How to calculate if a subsidized mortgage is right for you
The key to knowing if it’s worth it is to do the math. Here are some things to consider before making the decision:
Compare the bonus and non-bonus APR:
The APR (Annual Percentage Rate) gives you a more complete view of the total cost of the mortgage, as it includes interest and other additional costs. Comparing the bonus and non-bonus APR will help you see if the interest rate savings offset the costs of the additional products you need to take out.
Consider your long-term needs:
Consider whether you will need the products associated with the bonus for the entire life of the loan. A mortgage typically lasts for several decades, so it is important that you can meet the conditions of the bonus on a sustained basis. If you see that some of the products will not be useful to you or could become expensive over time, it may be better to opt for a mortgage without bonuses.
Consider flexibility:
When you take out a subsidized mortgage, you may feel tied to a bank for years. Changing banks or subrogating could be more complicated if you have several products linked to the mortgage. If you value financial freedom and the possibility of changing banks, it is important to think twice before opting for a subsidized mortgage.
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In short, a subsidized mortgage can be a good option if you already intend to take out some of the products required by the bank and if the interest savings are significant. However, if the additional products do not add value to you or limit you in the long term, it might be better to opt for a mortgage without a subsidy and look for those products separately on the market.
