It is recommended that you speak with a mortgage professional about all the options, and carefully read the fine print. It is important to understand to what you are agreeing. Seek legal advice prior to signing any agreements.
3. How to Shop for a Mortgage and Get the Best Deal
Mortgages are products, and they have different terms and conditions. Don’t be fooled into thinking that all mortgages are simple boilerplate documents that differ only by the interest rate offered. Break the mortgage into two components: the interest rate based on the length of the term, and the terms and conditions.
Your mortgage document is normally several pages in length and outlines the numerous terms and conditions. Different lenders can offer different terms and conditions and the interest rate may be negotiable. The key is finding the best mortgage for your needs, your long- and short-term goals, and a competitive interest rate.
Traditionally, borrowers obtain a mortgage pre-approval either directly from a bank or through a mobile mortgage representative or mortgage broker. If you choose to work with a specific bank, you may have the option of working with a mortgage representative located within a branch; some banks have “mobile” mortgage representatives that will meet with you outside the branch at a time and location convenient to your needs. Some mobile mortgage representatives also have offices located in real estate brokerages.
Bank mobile mortgage representatives are usually not salaried and, therefore, do not earn money unless they offer and you accept a mortgage from them. It is in their best interest to find and offer you a great deal. Being open to bundling other bank financial services and products may assist you in getting a better mortgage offer.
When dealing directly with a bank, don’t forget that you are also dealing directly with the company that is lending the money (as opposed to dealing with a mortgage broker). How you present yourself to a bank can make a difference as to whether you obtain a mortgage and how good of a deal you are offered. Banks are interested in serving your financial needs — a mortgage is one product amongst several other financial products that they offer. You may be able to get a better mortgage deal if you are willing to use other financial products they offer such as bank accounts, credit cards, vehicle loan, insurance, RRSPs, and other investments.
In-branch bank staff normally work on a salaried basis, and often the mortgage representative can and will offer you a menu of other bank-related products and services. If you have an established relationship with a bank, especially if the branch staff know you personally, you might consider speaking with the mortgage representative to determine what he or she will offer. The mortgage representative will still need to go through an application process and will need to adhere to bank underwriting and risk assessment policies; however, having a personal banking relationship may help.
It is important to understand that if you go from bank to bank in an attempt to “shop” around for a mortgage, each prospective bank may do its own credit check, and this will affect your credit score as multiple hits or inquiries are recorded.
Mortgage professionals are also trained to work with the self-employed and new immigrants. This is a more specialized process. Some lenders offer specific mortgages and programs created specifically for self-employed people and new immigrants.
The mortgage market is competitive and mortgages are usually negotiable. Remember it is not only the interest rate that you may want to negotiate — terms such as prepayment privileges (on closed mortgages), portability options, early renewal, penalties, and a host of other options should be discussed.
Occasionally, lenders offer promotions for their mortgage products such as cash back, rate discounts, and prepayment options. It is important to assess the value and importance that their offerings have to your needs, or if you would prefer more of a no-frills mortgage. Be sure to read the fine print because occasionally special terms and offers carry specific rules that must be followed. Understand what the product is; don’t simply choose a mortgage product based on the interest rate alone. Again, consult a lawyer prior to signing any contract or agreement.
It is a good idea to ask the mortgage broker or bank mortgage representative for an outline of all mortgage costs as well as an estimate of your mortgage payment (i.e., principal, interest, and taxes). Some will even help you prepare a housing budget.
3.1 Using the services of a mortgage broker
You also have the option of working with a mortgage broker — an independent licensed mortgage professional not directly employed or tied to one individual bank or lending institution. Depending on licensing, independent mortgage professionals are known by a few titles (e.g., mortgage broker, mortgage agent). For ease of clarity, an independent non-bank representative and non-bank mobile representative will be called a mortgage broker.
Most mortgage brokers work with a number of financial institutions, including banks, trust companies, insurance companies, and even private lenders. Mortgage brokers work on a commission basis. Their goal is to get you the best deal — a combination of interest rate and terms and conditions. Typically, the mortgage process with a mortgage broker involves you providing him or her with financial information (similar to what you would give to a bank representative) that he or she translates into a mortgage application. The mortgage broker will also need your permission to obtain your credit report. Most lenders will take the broker’s credit report into their system (normally only one credit report is required); however lenders have their own “stale date” periods when they consider the credit report not usable, and a new one must be acquired. Discuss this with the mortgage broker in advance to minimize inquiries on your credit, which could affect your credit score.
Mortgage brokers understand the underwriting policy of the lenders, and generally know in advance how the lender will evaluate your application. His or her job is to put together your application, complete with the required financial information and documents, and present it to several prospective lenders. Once the mortgage application and data collection has been completed, a mortgage broker can shop for your mortgage using technology.
Your application can be sent electronically to a number of lenders, all of whom have the opportunity to review your application and determine if they will make a mortgage offer, and what kind. These individual lenders understand that other lenders are also reviewing and evaluating your application at the same time. If you look good on paper, the lenders will want your business.
Once all the mortgage offers are back (usually within 24 to 48 hours) you and your mortgage broker can review the offers and decide which mortgage is best for you. This allows you to select a mortgage product best suited to your individual financial needs.
Some lenders offer “performance” benefits to mortgage brokers, which can be a benefit to the home buyer. These same lenders assess the mortgage broker’s volume of written mortgages, combined with their default and cancellation rate. When a mortgage broker acquires this status, he or she has the discretionary capability to give rate discounts below what is given to others.
Normally, as long as you are considered a good or “A” borrower, there is no additional out-of-pocket cost for the mortgage broker’s service because he or she is paid by whatever lender you choose. Having said this, it is still recommended that prior to using the services of a mortgage broker you ask up front if there are any fees that you will need to pay for his or her services. More complicated or difficult mortgages, especially if private lenders are involved, may involve paying a mortgage broker fee. Get everything in writing.
Experienced, good mortgage brokers are knowledgeable about the products offered by most banks, trust companies, insurance companies, and private lenders, and are able to recommend a variety of different mortgage options for your consideration. Most mortgage brokers are very motivated and work hard to get their clients a good deal.
3.2 Mortgage term and interest rates
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