Are you looking to refinance your mortgage? Looking to consolidate debt? Searching for a HELOC? Then you’ll want to read this article. We picked the brains of the best mortgage brokers in Canada. We asked them for their top tips when shopping for a loan product, and they certainly delivered.
Home transactions such as second mortgages, investment property purchases, HELOCs, and refinancing, are the largest financial decisions you will likely ever make. By reading this article, you’ll be better prepared the next time you’re looking to make such a decision.
Without further ado, here are our top 10 tips from CMI’s top brokers.
It’s not just about the lowest rate
Finding the ideal mortgage product isn’t just about finding the one with the lowest rate. While the mortgage product with the lowest rate may be the best mortgage for you, it’s no guarantee. It’s important to consider other factors like prepayment, mortgage penalties, and portability, which we’ll discuss below.
This is particularly true for second mortgages and investment properties. Your interest rate is really just one piece of the puzzle, and may not even be the most important.
Not all prepayments are created equal
Is your goal to pay off your mortgage or HELOC as quickly as possible? Then you’ll most likely want a product with generous prepayment privileges. Prepayments are extra payments you’re able to make above and beyond your regular mortgage payments without incurring a mortgage penalty.
Some lenders are more generous than others. For example, some lenders will let you prepay 20 percent of your loan balance as a lump sum on any of your regular mortgage payment dates throughout the year, while others will only let you prepay 10 percent once a year on your anniversary date.
If this is important to you, you’ll want to choose a lender with more flexible prepayments.
Consider loan penalties
When you’re refinancing a mortgage or buying an investment property, probably the last thing on your mind is mortgage penalties, but by ignoring penalties you could be making a big mistake.
Most Canadians choose five-year fixed rate mortgages for their safety and security, but did you know that they often to come with the highest mortgage penalties of all? The big banks tend to have the highest penalties of all.
If you think there’s a chance you could break your mortgage, it could be worth choosing a mortgage with a slightly higher rate and lower penalties.
Read the fine print on portability
Do you think there’s a chance you could sell the property during your mortgage term? Then you’ll want to choose a mortgage that’s portable. With a portable mortgage, you can take your mortgage with you without incurring a high mortgage penalty when buying a new property.
But be sure to read the fine print. Some portability clauses are more generous than others. Don’t just assume you can port your mortgage end of story.
Standard or collateral charge
When choosing a loan product, make sure to ask if it comes with a standard or collateral charge. A first or second mortgage with a collateral charge means that you may be able to take out a home equity line of credit later on, however, it makes it tougher to move your mortgage when it comes up for renewal.
Because of that, your lender is less likely to offer you its best mortgage rates upon renewal. Make sure you know what you’re signing up for before signing on the dotted line.
Don’t forget to budget for closing costs
When buying a property, don’t ever forget to budget for closing costs. Closing costs include land transfer tax, real estate lawyer fees, and home inspection. Contrary to popular belief, your bank won’t typically cover them, you’re responsible for them. The same goes for HELOCs, you will likely be expected to pay for an appraisal.
Budget up to four percent on closing costs. If you’re buying a $500K home, you should set aside up to $20K for closing costs.
Don’t put your mortgage application in jeopardy
When applying for a mortgage, don’t do things to put your application in jeopardy. Examples of things that can hurt your mortgage application and even cause it to be declined, include quitting your job in the middle of the application, or making big purchases on your credit card or taking out an auto loan.
Those most likely will affect your income and credit, two major factors lenders look at when considering your application.
Shop around with a mortgage broker
Your local bank branch can be a good first stop, but if you want to do your due diligence, be sure to shop around with a mortgage broker. A broker can shop the market for various mortgage products on your behalf, saving you time and money, along with protecting your credit score.
You’re more likely to find a better mortgage product by using the services of a broker.
Consider monoline lenders
You might hesitate to use a lender outside the big banks. But by considering monoline lenders, you could save yourself thousands of dollars in interest over the life of your loan product, not to mention pay a less costly mortgage penalty if you end up breaking your mortgage down the line.
Shop around at your renewal date
Last, but not least, be sure to shop around with a mortgage broker when your mortgage comes up for renewal. By simply signing on the dotted line, you’re potentially leaving thousands of dollars in savings on the table.
There you have it, our top tips from the best mortgage brokers in Canada. Now, next time you shop for a mortgage, you’ll be a savvier consumer.