Buying a home is probably the most important financial decision you will have to make. It is therefore important to carefully consider your options. And as with any major decision in your life, whether financial or otherwise, you have a choice of options. Working directly with a bank or going through a mortgage broker are two great options. To help you choose the best solution for your particular financial situation, we analyze the advantages and disadvantages of each one.
The most common types of mortgages
The most obvious reason for having to negotiate a mortgage is to finance the purchase of a home. If it’s your first home, congratulations! Sometimes incentives are reserved for first-time buyers entering the market.
Maybe you have sold a house and are you ready to buy a new one? You have already gone through the process and gained some knowledge along the way. Remember, if you terminate your contract earlier, you risk penalties.
Your mortgage term may be over. It is now time to renew it. In this situation, you can stick to the lender who has approved your first mortgage or it may be time to look elsewhere. If you have waited for your renewal date, you may be able to get a better rate or modify the conditions without penalty.
You may be looking to refinance your mortgage, which increases the funds available to you. This can be a great option if you are looking to consolidate your debts or start a renovation project in your home. If you want to increase the amount of your current mortgage, you will need an assessment of your home to determine the value of your home.
This option, open to seniors, allows homeowners to extract some of their equity, in cash, from their home for use for living expenses, travel, home repairs or other expenses.
What can my bank do for me?
When mentioning a mortgage application, most people think first about their main bank. Canada’s five largest banks (RBC, TD Bank, Scotiabank, BMO and CIBC) are well established and a reliable source for your family’s financial needs, including mortgages. Working with traditional banks has many advantages:
- Convenience. People tend to feel safe in a bank and they prefer to have all their financial resources in one place.
- Location. Many people enjoy doing business with a bank that is in the street.
- Face to face communication. Being able to chat with a familiar person who knows you and your family is often a benefit. If you already do your daily banking on site, your mortgage specialist will be able to access information that will give them an overview of your financial situation as a whole.
- Benefits for the combination of services. Your mortgage may even include benefits such as canceled account fees or a free safe. It may even be possible to obtain an additional net worth credit line for renovations after your move.
- Lenders. Banks are privileged creditors. They tend to look for low-risk borrowers with higher credit ratings. A lenders can offer advantageous rates, but they also apply the strictest rules. For this reason, your bank may not always be able to give you what you are looking for.
At the bank, higher rates than advertised may be available unless you are willing to negotiate and we recommend it. If you plan to look at several banks in your area, several appointments and visits will be credited.
If you are self-employed, have a high debt, low income, or have a history of recent bankruptcy, a mortgage broker may be more likely to find you a lender.
What can a mortgage broker do for me?
A mortgage broker is a licensed professional who can obtain a mortgage for his clients. They act as an intermediary between you and a potential lender. When they use the A lenders, their services do not cost you anything because they are paid by the lender, after the closing of the mortgage. They are required to update their qualifications regularly, although the specifics vary from province to province.
According to the Mortgage and Housing Consumers Survey conducted by the Canada Mortgage and Housing Corporation in 2017, mortgage brokers are gaining an increasing share of the market:
- First-time buyers, 55%
- People renewing their mortgage, 35%
- Refinancers, 40%
- Recurring buyers, 40%
A mortgage broker may be suitable for several reasons:
Access to several lenders
Mortgage brokers offer a unique stop to their clients. They can access hundreds of potential lenders with a single credit application that affects your score. They are often able to find attractive rates and get approved quickly.
Banks expect customers to negotiate with or accept the given rate, but mortgage brokers are more likely to fight for a lower interest rate.
Mortgage brokers are often very flexible with meetings and communication. Many of them are available after business hours and are willing to handle meetings and most of the paperwork required by text, email and Skype. If you are a little introverted, you can even deal with an online mortgage broker, avoiding face-to-face meetings.
Increased chances of getting a mortgage
They are often able to get their clients approved when banks can not because they are able to work with more lenders and with those who are willing to take a little more risk. In more difficult financial conditions, a mortgage broker can work with less traditional B and private lenders, allowing them to take into account the details of each particular case rather than just counting the numbers. Be careful to read the fine print. Although an agreement with a private private lender can provide you with the money you need, it may involve higher interest rates, unexpected broker fees, lender fees, and / or adverse mortgage terms. such as penalties for additional payment.
Qualify for a mortgage
Whether you choose to use a bank or a mortgage broker, your lender will review your income and debt when calculating the mortgage amount.
When deciding where to get your mortgage, it’s important to find out. Interest rates are rising and the rules are tightening because lenders want to know that you will be able to bear the costs. A better interest rate can mean savings of several hundred dollars each year. Ask as much as you can about terminology and potential options before consulting a mortgage professional. This will give you a better idea of the questions to ask.
Determine the amount you can use for your down payment and the monthly payment you can afford in advance. You can even check your own credit score to avoid any surprises when you meet your lender. You can do this easily through companies like Equifax and Transunion for a nominal fee. If you do it yourself, it will not count as a survey of your credit report. Be careful when shopping for mortgages, because every time a lender publishes your report, it can affect your score.
Start with a pre-approval. If your request is denied, you can improve your situation before looking for real estate. A mortgage broker is often willing to help you develop a plan to put things in order before you reapply.
Questions to ask
Choosing your mortgage provider is a very personal decision. Whichever option you choose, make sure you understand the terms of your mortgage before you sign the contract. To help you be as well prepared as possible, here are some questions to ask:
What about the interest rate?
Is it fixed or variable? Fixed rates mean that your monthly payment will always be the same for the period of your term. Variable rates may be lower, but may fluctuate, up or down, throughout the period.
Can I make a lump sum payment?
If you find extra money “under your mattress”, you may want to pay off your mortgage a little faster. Advance payments may or may not be authorized, depending on the terms of your contract.
How long before paying my mortgage?
The typical depreciation periods are 25 or 30 years.
When can I renew or renegotiate?
This can range from 6 months to 10 years, but 5 years is the most common term.
Are there other costs involved?
You may incur other expenses before your mortgage can be financed. Some lenders require an assessment of the house. In addition, lenders generally want to see proof of insurance that requires firewood, plumbing or electricity costs.
Do not be worried. You are never stuck with a particular lender or a specific rate, forever. In your mortgage contract, you negotiate an agreement that lasts for a specific period called term. At the end of this period, you can renegotiate a better rate with the same lender or even choose to go elsewhere for your financing.
If you break the futures contract before the end of your term, penalties and fees will be charged. However, if you are able to make a very good deal on a lower interest rate before the end of your term, it might be worth paying the fees. Remember that this is rarely the case. Therefore, always consult a professional before deciding to break your mortgage contract.
Regardless of whether you work with a bank or mortgage broker, you will work closely with them and develop a relationship. Ask for references and consider the word of mouth of your family, friends and even your real estate agent before choosing a specific bank or mortgage broker.