The bank is one of the most obvious first stops for most people looking for a mortgage. Your day-to-day banking institution may also entice you with incentives to open a mortgage portfolio. Going to your bank also saves you from going from one lender to another.
But we all want the best deal out there, right? For that, you’d have to go from one bank to another looking for the best rate.
Sure, you’re a very organized person and can likely create a spreadsheet to take on that task. But who wants that headache? Who has the time to go from one bank to another? And who has the time to understand the intricacies of the different packages each bank offers? How do you even know you’re getting the best deal?
The mortgage world has many hidden twists and turns that can throw hurdles your way. The process is complicated enough for those that already own properties, let alone for first-time borrowers.
But before you give up on applying for a loan, there’s hope in the form of using a mortgage broker.
Mortgage brokers are the bridge between borrowers and lenders. They’re licensed and qualified professionals that put a lot of time into becoming experts in the world of mortgages, especially those that have years of experience. Their skills make it simple and easy for borrowers to find the pot of gold at the end of the mortgage rainbow.
Brokers have access to a large variety of lenders, from banks to non-traditional financial institutions and creditors. Years of experience dealing with lenders give brokers insider access to great rates. They’re your personal loan shoppers, dedicated to finding you the best option. They’re trained and have years of experience to easily take care of all the paperwork and legwork for you.
Brokers don’t hesitate from taking on clients that banks may turn down, because they don’t work for a dedicated lender. Brokers will create a borrower profile, which they will use to match you with the best lender as they have about 57 lenders to choose from.
Brokers don’t just come onto the scene when you’re in the market to buy a home. They will be there through all the stages of property ownership, from getting pre-approved to getting a mortgage to renewing it or to purchasing a second home or investment property. Not only that, but brokers will also help assess and set up goals that will take you closer to getting the mortgage needed for your dream house.
And the best thing is that mortgage brokers will not hesitate to answer any of your questions — so ask away.
Let’s handle this one right at the beginning, shall we?
Mortgage brokers work on commission, so lenders cover their fees. Hence, borrowers (that’s you) usually don’t pay anything. However, depending on your case, you could be required to pay some money for credit or income issues but that is always disclosed upfront.
Other mortgage-related fees you will have to pay include appraisal fees, land transfer taxes, lawyer fees, and title registration fees.
But only in rare cases will you have to pay your broker a fee for their work, they will always discuss the reasons and scenarios before approval so that you are aware.
With that out of the way, let’s focus on what the actual process entails.
The broker’s task begins way before you’ve even started looking at properties. They will help you pre-qualify for an amount that will guide your search.
Once you’re ready to start property hunting, you can go ahead and give the green light to your mortgage broker to start the approval process. Completing paperwork and getting the final go-ahead from a lender can take a few weeks.
But the broker’s role doesn’t just end there. Once you’ve identified a property, your real estate agent and the broker will work together to put in a bid and help you close the deal.
Not all lenders are equal and neither are all interest rates.
Asking about the best interest rate for you is a good starting point because you may not qualify for what is advertised on a bank’s website. The interest rate you receive from a lender could depend on factors, such as your credit score, your current debts, income level, loan repayment history, and loan term. Further factors that play into the process are the types of lenders your broker has access to, also the amount of your downpayment can determine the rates as well.
Using all your financial information, brokers help you pre-qualify for an interest rate. That’s a conditional rate that can be solidified once you decide to go ahead.
It’s important to know how much money you’ll have to arrange upfront. You could be required to give as little as 5% and as much as 20% of your total mortgage as a down payment. But a general misconception is that the larger the down payment, the better your mortgage rate. The amount of money you can provide at the outset does affect your interest rate, but the rate is related to risk, so with insured the risk is low as well as with more funds down where there is equity in the property.
There are two types of mortgages available in the Canadian market: a fixed rate and a variable rate.
Your broker can explain the ins and outs of both.
A fixed-rate mortgage may make the most sense for first-time homebuyers because it means your monthly payments will remain the same. It’s better for budgeting. Also, with variable rates, the Bank of Canada has been making many rate adjustments due to its mandate to curb inflation.
In the second instance, your rate could go up and down at any time during your mortgage term. This type of rate is a bit tricky to budget for because it’s affected by the l Bank of Canada rate changes.
Lenders are laser-focused on making their money back. Borrowers need to demonstrate their ability to pay off the loan. You can do this by showing a steady and increasing rate of income year over year. Don’t worry if you are paying off existing debt. The key here is to make sure you’re paying it off. But if you’re loan-free, it’s even better.
Don’t let this one bite you in the behind. If you’ve saved enough thinking you can pay off your mortgage before the term end — you may want to cool your horses a bit. Some lenders charge a penalty fee for early prepayment. They do this because they’re expecting to make a certain amount off your mortgage. Early payments throw a wrench in their plans. Ask your Mortgage Broker if it’s beneficial to pay off your mortgage earlier.
Sit down with your mortgage broker to get a clearer understanding of this. It is especially crucial if you’re under a strict timeline to move out of your existing dwelling. It’s always a good idea to have a detailed discussion with your broker to plan for unforeseen delays.
Even though you may not be paying your broker any fees for their work, you will be required to pay fees when the deal closes. Talk to your broker about a cashback mortgage option. You can use the money toward closing fees, which will include lawyer’s costs, utilities, home insurance, repairs, and maintenance.
Pay special attention to this one. Discuss any limitations in the terms of the mortgage before you sign anything. This is possibly one of the toughest conversations you will have with your broker. But they can advise you about a workaround so you’re not limited by the mortgage terms that may prevent you from refinancing or switching during a term.
A mortgage is a huge commitment for anyone to undertake, so do your homework. Whether you’re applying for a mortgage on your own, have a partner, or have co-signers, make sure to list all your questions right at the beginning.
Misunderstandings have no place where important financial transactions are concerned, so go into the meeting prepared with queries and ask follow-up questions. And never hesitate to send more via email.
Make it a friendly conversation so no one is ticked off. However, professional mortgage brokers expect to be “interrogated” and never feel offended. In fact, they welcome the opportunity to give you a better understanding of their role and the process. We love to answer questions, it is full transparency!
Call us to review your financing requirements, we are here to review your requirements and provide solutions!