Looking for the Best Mortgage? There is more than just interest rates to consider when looking around for a mortgage deal. With the rules of the game changing all the time, now more than ever it s important to be sure you are working with a qualified finance professional. A mortgage whether it s a home purchase, a refinancing, or a home equity loan has many different variables that you should consider. Be sure to compare all the costs, and be sure to ask the agent to disclose all of the costs and fees involved upfront. Shopping, comparing, and negotiating may save you thousands of dollars compared to your local bank. The Benefits of Using a Mortgage Broker Home loans are available from several types of lenders banks, trust companies, wholesalers, credit unions, and private companies. Different lenders may quote you different prices, so you should contact several lenders to make sure you re getting the best price. Be careful, however, since each time you make an application it will have a negative impact on your credit score. You can also get a home loan through a mortgage broker. Brokers arrange transactions rather than lending money directly; in other words, they work on your behalf to shop multiple lenders and find the best deal for you. As mortgage brokers work with multiple lenders, they provide the best possible selection of loan products and terms available from which you can choose. Brokers will generally contact several lenders regarding your application, but a good agent should be constantly conducting market price discovery so that you are able to leverage their continuing experience and volumes. Most agents are not obligated to represent every person who contacts them. Consequently, seasoned brokers will expect you to contract for their services just as you would with any other service professional. Be sure to get a second opinion on your mortgage renewal or bank quote, even if you have been pre-approved. Many banks will often decline mortgages that are easily completed by a broker. Remember, not all brokers are created equal, and while a mortgage broker CAN be a great financial resource, not all of them are. Obtain All Important Cost Info. Find out all the costs involved in the loan. Knowing just the amount of the monthly payment or the interest rate is not enough. For example, the difference between the lowest available price for a loan product and any higher price that the borrower agrees to pay is an overage. Let the loan officer know that you know that mortgage prices are not engraved in cement, and that you have or will explore other options. If you are in the middle of ordering an appraisal on your home but the lender hasn t provided any expectations of rates or fees, be afraid, be very afraid. Also, many mortgage brokers operate bait & switch advertising, offering low rates that will later increase (teaser mortgages) or advertising low rate fixed and variable terms that do not have pre-payment or early refinance capabilities. Unfortunately many of these borrowers don t find out until it s too late, that the extra 0.10% they saved upfront cost them $15,000 later on. Ask for information about the same loan amount, loan term, and type of loan so that you can compare the information. The following information is important to get from each lender and broker: Rates Ask the broker if there is a catch or any other hidden fees to the mortgage interest rate being quoted.
Ask whether the rate is fixed or variable rate (AKA: adjustable-rate). Keep in mind that when interest rates for adjustable-rate loans go up, generally so does the monthly payment. Fixed rates, however, can carry large penalties with prepayment and are as much as double a comparable variable rate mortgage. Comparison Example:: Points Points are fees paid to the lender or broker and are often linked to the interest rate and/or loan amount. Be sure to ask how many points the broker or lender may be charging. Many offers that sound too good to be true, are! That s because some brokers don t disclose all of the fees until the finish line, after it s too late to change course. Fees A home loan often involves many fees, such as legal fees, appraisal fees, insurance premiums and/or lender fees, broker fees, land transfer tax and more. Every good broker should be able to give you an estimate of the transaction s total expected fees. Some fees are paid when you apply for a loan (eg: appraisal fees <in some cases>), and others are paid at closing (eg: legal fees). In some cases, you can borrow the money needed to pay these fees, but doing so will increase your loan amount as these fees are rolled into the loan. Typically higher rates will not apply, making this the common choice for most borrowers today. Be sure to ask for an explanation of any fee you do not understand or think may be unusual. Down Payments and High-Ratio Mortgage Insurance Some lenders require as much as 25 percent of the home s purchase price as a down payment. That being said, there are many loan programs available that do provide financing up to as much as 103% of the purchase price of a new home. However, in order to borrow more than 75/80% of the property value with a traditional loan, the Bank Act requires most lenders to obtain default insurance to protect the lender in case the home buyer fails to make good on their obligations. When government-assisted programs such as CMHC (Canadian Mortgage & Housing Corporation), GE (Genworth Financial), or CG (Canada Guarantee) are available, the down payment requirements may be substantially smaller than the 20-25% mentioned above. Ask about the lender s requirements for a down payment, including what you need to do to verify that funds for your down payment are available. Ask your agent about special programs that may be offered that may fall outside of the traditional mortgage rules. Most insurance fees are added on top of the loan amount, and should be included in the payment figures being provided. Some banks and brokers alike leave this out in order to make the payments seem lower. Be sure to ask! The good news is that most mortgage insurance is portable, and you can take the loan and insurance with you to your next home if you choose to move. Need to borrow again in the future? Be sure to mention to your mortgage agent that the mortgage was previously insured. It may be possible to arrange a reduced premium if you are borrowing the maximum 85-90% of your property value (for refinance transactions). Don t Forget To Make A Deal! On any given day, interest rates can go up or down. Once you know what each lender and broker has to offer, negotiate for the best deal that you can. Don t be afraid to make a commitment and move forward! Once you are satisfied with the terms you have negotiated, it s time to lock-in the deal from the broker through a service level agreement. The agreement should include the rate that you have agreed upon, the period any rate holds may last, and the major costs involved. If rates fall, try to negotiate a compromise with the lender or broker. Most lenders and professional brokers offer float-downs, meaning that you will obtain the better rate provided the original offer was not a special terms mortgage. Just as with shopping for gasoline, you can drive around the block looking for a station that has a price 0.003c / litre lower, or keep driving and maybe find a station even 0.005c / litre cheaper. But sometimes the price of gas spikes, and sometimes it costs you more gas driving around than the savings of a lower price in the end!
Shop: Locally & Online Your local newspaper and the Internet are good places to start shopping for a loan. You can usually find information both on interest rates and on points for several lenders. Since rates and points can change daily, you ll want to work with someone who can help keep you up to date. Multi-Cultural Lending Canada is a very diverse country with a wide variety of ethnic groups and languages. Many minority groups are under-serviced by the banking community as a whole. If you have difficulty conducting your affairs in English, be sure to select a mortgage agent that is able to help make you feel comfortable and provide a clear understanding of your transaction. If you are new to Canada and seeking to acquire a property for vacation, investment, retirement, or you have recently emigrated to start a new life, there are many programs available to help overcome limited credit history in Canada. No mortgage should be rejected on the basis of race or religion, language, age, or marital status. The same can be said for sources of income, with the exception of criminal activities. Compare: Mobile & Flexible Mortgage Service With the exception perhaps of TD Bank, most Canadian financial institutions are stuck in the 50s at least when it comes to customer service and flexible working hours. A good mortgage brokerage is able to offer service to their clients through a variety of approaches, and on your time. Whether its email, phone, fax, or a home visit, most mortgage professionals today understand that the quality and flexibility of their service is critical to continuing to gain market share from their bank competitors. Flexible Income Criteria Whether all or part of the applicant s income comes from disability, self employed, or salary income shall not be a sole reason for approval or disapproval. One area that mortgage brokers have been well known for is their ability to provide custom financial solutions for applicants with non-standard income. Negotiate: Even with Credit Problems Don t assume that when your bank rejects your mortgage due to minor credit problems or difficulties stemming from unique circumstances, that these obstacles cannot be overcome. Far too often, however, that is the end of the search, where it should really just be the beginning. Unfortunately, too many agents that specialize in the alternative marketplace operate as sharks instead of service providers. Your bank may say No, a $5,000 fee is not reasonable on a $30,000 2 nd mortgage and No, a $7,000 brokerage fee is not reasonable on a $300,000 1 st mortgage. But just because your bank may have said no, it doesn t mean that you should give up or get ripped off! What s more, if your credit has been damaged you need the help and guidance of a financial expert now more than ever. Be sure to seek out someone prepared to provide that guidance throughout the next few years, which is how long it might take to get the ship righted again. As you may be looking at higher pricing than a borrower with excellent credit be sure you get your money s worth by gaining an education in credit and budgeting as part of your mortgage. Ask how your past credit history affects the price of your loan and what you would need to do to get a better price now or in the future. In today s marketplace of over 10,000 mortgage professionals in Ontario alone, the importance of ensuring you are in good hands cannot be overstated. Don t forget that you are seeking financing to achieve a specific goal, and there may be a number of ways of achieving the same thing with different products and terms.
Glossary Adjustable-rate loans, also known as variable-rate loans, usually offer a lower initial interest rate than fixed-rate loans. The interest rate fluctuates over the life of the loan based on market conditions, but the loan agreement generally sets maximum and minimum rates. When interest rates rise, generally so do your loan payments and when interest rates fall, your monthly payments may also be lowered. Float downs means obtaining a better rate provided the original offer was not based on a mortgage that included special terms. The interest rate is the cost of borrowing money expressed as a percentage rate. Interest rates can change because of market conditions. Loan origination fees are fees charged by the lender for processing the loan and are often expressed as a percentage of the loan amount. Lock-in refers to a written agreement guaranteeing a home buyer a specific interest rate on a home loan provided that the loan is closed within a certain period of time, such as 60 or 90 days. Often the agreement also specifies the number of points to be paid at closing. A mortgage is a document signed by a borrower when a home loan is made that gives the lender a right to take possession of the property if the borrower fails to pay off on the loan. Overages are the difference between the lowest available price and any higher price that the home buyer agrees to pay for the loan. Loan officers and brokers are often allowed to keep some or all of this difference as extra compensation. Points are fees paid to the lender for the loan. One point equals 1 percent of the loan amount. Points are usually paid in cash at closing. In some cases, the money needed to pay points can be borrowed, but doing so will increase the loan amount and the total costs. Default or Private mortgage insurance (PMI) protects the lender against a loss if a borrower defaults on the loan. It is usually required for loans in which the down payment is less than 20 percent of the sales price or, in a refinancing, when the amount financed is greater than 80 percent of the appraised value. Service level agreement A service-level agreement (SLA) is a contract between a service provider and a customer that specifies, usually in measurable terms, what services the service provider will furnish Transaction, settlement, or closing costs may include application fees; title examination, abstract of title, title insurance, and property survey fees; fees for preparing deeds, mortgages, and settlement documents; attorneys fees; recording fees; and notary, appraisal, and credit report fees. Under the Real Estate Settlement Procedures Act, the borrower receives a good faith estimate of closing costs at the time of application or within three days of application. The good faith estimate lists each expected cost either as an amount or a range