Check out the answers to the top questions you should ask before choosing a mortgage. This is a book I write and Published on Kindle digital publishing. It’s your for free.
1. What’s the best rate?
Questions about mortgage rates are the most common questions I get as a mortgage broker. Unfortunately, clients who are only concerned about rates often overlook other aspects of their mortgage that are even more important. Mortgage rates are complicated, and getting the lowest rate doesn’t necessarily mean you’re getting the best deal. There are fixed rates and variable rates; there are also closed mortgages and open mortgages. These factors must all be considered together in order to provide the best possible mortgage for a borrower. This is why borrowers need to think about their short- and long-term goals, and discuss them with their broker. This allows us to fill you in on the right options and find the best lenders to meet your needs.
2. Which lender has the best rate?
Not all lenders are created equal. The same is true for mortgage products which, along with promotions and rates, can change often. As a mortgage broker, it’s my job to stay on top of the changes in the mortgage market and educate my clients about how those changes affect them. Today’s lowest-rate lender may not be the same tomorrow.
3. How do mortgage brokers get paid?
For most transactions, banks pay mortgage brokers directly for sending them a client. This means that borrowers rarely have to pay a mortgage broker. That said, for clients with past credit problems, getting a mortgage may involve additional lender and broker fees. This is why it pays to have great credit! Having a mortgage broker helping you with these types of transactions can be helpful as they can sort through and get you the best deal.
4. Why should I use a mortgage broker?
Mortgage brokers provide a few key advantages for borrowers. First, they provide a single source of contact for all your mortgage needs. Mortgage brokers also have access to more products than a typical lender at a bank, and are less likely to be biased toward particular products. As a mortgage broker, I work for my clients – not a financial institution – so I always have their best interests at heart. Plus, the relationship doesn’t end when you get the loan – I work with you until your new home is paid off. Finally, mortgage brokers shop around for the best rates so that you don’t have to. This also allows you to avoid having several lenders pull your credit, which can put a dent in your credit score.
5. What is a mortgage broker?
A mortgage broker is a licensed professional who specializes in obtaining financing for homebuyers. As a broker, I work with clients to find the right lender to meet their unique needs. Mortgage brokers are provincially licensed and regulated, and are often subject to ongoing educational and professional development requirements. We also adhere to high professional standards and a strict code of ethics.
6. I have good credit. Why do I need a mortgage broker?
Broker used to be the public’s “Plan B” when it came to financing. This is no longer the case, and many clients now call a mortgage broker before visiting a bank. According to a study released by Maritz Research in 2011, negotiating a mortgage with a broker resulted in a rate decrease of up to 1.4 percent. That’s a savings that can add up to tens of thousands of dollars over the course of your mortgage.
7. Does using a mortgage broker cost me money?
A mortgage broker’s services are usually free unless a client has very bad credit. In such cases, the lender may charge a fee. However, your broker will strive to provide the best rate possible in order to minimize the overall impact of this fee.
8. How many lenders do you work with?
It depends on the broker. Some companies work with as few as 30 lenders. I have access to up to 70 banks, credit unions and trust companies. This allows me to offer up to 319 mortgage products to help meet buyers’ individual borrowing needs.
9. Do you prefer some lenders over others because they pay you more?
Most lenders pay the same or similar rates. Plus, brokers earn ongoing business by providing quality service to their clients, which is why we always put their interests first.
10. How much can I afford?
This is really easy to determine. Take your yearly pre-tax salary and multiply that by four. That number gives you an idea of the size of the mortgage you may qualify for. Some lenders will allow a client to use up to five times their income. This calculation depends on the lender’s rules and the borrower’s credit.
11. What is a home inspection and should I have one done?
A home inspection is an optional privilege home buyers can ask for when putting in an offer to purchase a home. A home inspection is usually completed by a licensed
professional, who inspects the home for electrical, plumbing, ventilation or structural problems. Sometimes, home inspectors just confirm a buyer’s confidence in a home. However, home inspectors can also save people thousands of dollars – and even prevent some buyers from going through with the purchase of a flawed home. At the very least, a home inspector will ensure that buyers are informed about what kinds of repairs their home might need in the coming years. I always encourage people to find a home inspector with a background in construction. This helps ensure they have the experience to evaluate your home from top to bottom, inside and out.
12. What is the minimum down payment I need to buy a home?
According to the new mortgage rules, borrowers need a minimum down payment of 5 percent of the home’s sale price. The most common way to come up with this cash is to save it, but there are programs that offer cash back to homebuyers when the home sale is closed. This option may be benefit borrowers with limited funds who are committed to owning their own home.
13. What is mortgage insurance? There are two types of mortgage insurance out there. You may have heard of the Canadian Mortgage Housing Corporation (CMHC). With this program, borrowers pay a premium of 2-3 percent on a mortgage if they have a down payment of less than 20 percent of the price of the home. This insurance allows what are considered higher-risk borrowers to gain access to home financing. There is also mortgage insurance to protect homeowners and their families in case the borrower dies before paying off the mortgage. Some borrowers enjoy the security this can provide for their family.
14. What is a conventional mortgage? In Canada, a conventional mortgage refers to a loan in which the borrower puts at least 20 percent down and doesn’t have to pay a CMHC insurance premium.
15. How does bankruptcy affect my ability to qualify for a mortgage? Most lenders will still consider clients that have had a bankruptcy in the past as long as they have been discharged and have been rebuilding their credit for at least two years. A good way to rebuild credit is to obtain a secured credit card for $1,000, use it for regular expenses and pay it off on time. You need two credit cards or loans, also known as trade lines, in order for a bank to reconsider you for a mortgage.
16. I pay child support. Will that affect my ability to qualify for a mortgage? Yes. Child support can detract from the payer’s ability to attain a mortgage, but it benefits the party who receives the support. This is because mortgages are granted based on what you can afford to pay. Paying child support will reduce a borrower’s ability to afford a mortgage, while receiving child support will improve a borrower’s income and, therefore, his or her borrowing power. For example, if a divorced husband is paying child support of $1,200 per month, this will affect his ability to qualify for higher mortgage amount. The opposite is true for his former spouse, who is receiving the child support as part of her income.
17. What factors does a mortgage broker consider in determining my loan? Your ability to qualify to buy a home is based on your credit score, your income and employment stability, and the type of home you’re buying. Brokers weigh these factors to determine how much you can afford to pay and the level of risk you pose to the lender.
18. I received money as a gift. Can I use it as a down payment? Yes, as long it comes from an immediate family member like a brother, sister, father, mother or grandparents. You must also supply your broker with a gift letter, which states that the money is a gift and does not need to be paid back.
19. What is a pre-approved mortgage? Realtors encourage their clients to get pre-approved for a mortgage before they start shopping for a home. This can strengthen a buyer’s position when it comes time to negotiate the sale. A pre-approval is basically a less formal version of what will occur when you actually apply for your mortgage. A good mortgage broker will collect all the documents that are required, and provide you with the amount of money you are qualified to borrow. This also helps homebuyers narrow their search by letting them know what they can really afford.
20. Should I wait for my mortgage to mature before renewing it? It depends. If a borrower is in a high-interest mortgage product, it is the interest rate differential (IRD) that will determine whether a borrower should refinance. An IRD is the penalty imposed by the lending institution and it is triggered when a borrower breaks an existing mortgage to get a cheaper rate. A mortgage broker can calculate whether it makes sense for you to break your mortgage and will calculate the penalties against the savings you’ll incur through refinancing to determine which option is most profitable for you.
21. What is a down payment? Most of the time, clients don’t have enough money to pay for an entire home in cash. Therefore, they put down a small amount of the total price of the home, while the bank lends them the rest. This small amount is called a down payment; the portion from the bank is called a mortgage.
22. How can you buy a home with as little as 5 percent down? The Canadian government created a company called the Canadian Mortgage Housing Corporation (CMHC). CMHC makes it possible for Canadians to qualify for a mortgage with as little as 5 percent down because it protects the bank if the borrower defaults. Borrowers with a low down payment are considered higher risk. By insuring these lenders, CMHC also helps contribute to a safer, more stable mortgage market. Borrowers who use CMHC have to pay a small premium of 2-3 percent of the mortgage loan.
23. How can you pay off my mortgage more quickly? There are many strategies for becoming mortgage-free faster. One tactic is to choose a
bi-weekly or a weekly payment instead of a monthly one. This prevents interest from accumulating as quickly. Another way is to pay a little extra every month, or every time you can afford to. Paying an extra $100 per month can have a huge impact on how soon you pay off your mortgage. Finally, a really amazing tactic to pay off your mortgage is to choose a bi-weekly accelerated payment. This alone can help you pay off your mortgage two to four years sooner. There are also a few programs that allow you to make your mortgage tax deductible. These can shave up to seven years off your mortgage.
24. How can you use your RRSP to help you buy your first home? The Home Buyer’s Plan allows buyers to use up to $20,000 of their RRSP savings as a down payment on a first home. This means that a couple can use up to $40,000 in funds from their RRSPs. Unlike other RRSP withdrawals, this one comes without penalty, but the funds do have to be repaid to the RRSP within 15 years.
25. What are the costs associated with buying a home? The first thing you need to consider when buying a home is your down payment. Homebuyers should also budget for an additional 1.5-2.5 percent of the loan for taxes, land transfer taxes, disbursements, legal fees and an inspection.
26. What should the length of my mortgage term be? When choosing a term, you should consider what your plans are for your home. What is your job situation? Do you expect to have to move in the next couple of years? Is this a neighbourhood you would like to live in over the long term? Let’s say you‘re in a neighbourhood that you’d like to move out of within a few years. In this case, you should probably get a mortgage that matures within a few years. There are many variables that you should consider when choosing a mortgage term. Fill your mortgage broker in on your plans and he or she should be able to help you make the right choice for you.
27. What are the monthly costs of owning a home? Besides monthly mortgage payments, homeowners are also responsible for property taxes, home insurance and utilities. Home ownership also involves paying for repairs and upkeep. If you live in a condo or strata, you will also pay condo or strata fees.
28. Should you go with a short- or long-term mortgage? Shorter mortgage terms usually carry lower rates, but if you choose a shorter term and then find that the economy is doing better at the end of the term, you might be subject to a much higher interest rate. Therefore, you should choose the mortgage term that suits your needs. If you don’t see yourself moving any time soon, choose a five-year rate.
29. What is a fixed-rate mortgage? A fixed-rate mortgage has the same payment amount every month for a term that can range between six months and 10 years. Some clients prefer a fixed-rate mortgage because they like the security of knowing what their payments will be for the duration of
30. What is a variable-rate mortgage? Variable mortgage rates are based on the Bank of Canada’s prime rates. Variable rates are usually prime plus or minus a certain percentage. At the time of writing, for example, variable mortgage rates are at prime (3 percent) minus .15 = 2.85 percent. So, if the prime rate goes up to 4 percent, this raises the borrower’s mortgage payment. This is why variable rate mortgages are qualified at a 5.29 percent benchmark rate.
31. How much do I need for a down payment? In Canada, clients can use as little as 5% as a down payment, but there is no cap on how much you can put down. Borrowers who put down less than 20 percent of the cost of the home will have to pay a CMHC insurance premium.
32. What are closing costs? Closing costs consist of property taxes that were prepaid by the previous owner of the house or condo you’re purchasing, legal fees, land transfer taxes, insurance and title insurance. If you buy a brand new home, you may also be subject to GST or HST, depending on the province in which you live.
33. Can a mortgage broker sell my information to other parties? Because mortgage brokers are highly regulated, we are required to keep your information confidential, even if you don’t do business with us.
34. What happens if I’m not satisfied with a mortgage offer? We do everything we can to make sure our clients are 100 percent satisfied with our mortgage offer. If you are not happy our offer, please let us know. And remember that you are not obligated to accept any offer that we provide.
35. What is the difference between term and amortization? Amortization is how long it will take to pay off your mortgage. The term is the length of the contract that you are locked into. Amortization will affect your mortgage payment; the longer your amortization, the lower your payment, but the more your mortgage will cost overall as more interest accumulates.
36. What’s the difference between pre-qualification, pre-approval and full approval?Pre-qualification is when a mortgage broker looks at a borrower’s information and application and determines the size of the loan for which they qualify assuming that information is accurate. Pre-approval is when the mortgage broker actually verifies the information provided and submits it to the lender for basic underwriting. The actual mortgage approval occurs when a borrower puts an offer on a home. We call that a “live deal.” This is when we inform the bank that we need a full approval. The bank will also do more research to verify employment and other sections of the mortgage application.
37. What is title insurance? Title insurance protects homeowners against problems related to the title of their home. This might include issues such as encroachments, liens or right of way issues.
38. What is an appraiser? An appraiser is a licensed professional who works to determine the value of a home at a given time. The appraiser will compare your property against other properties that have recently been sold in the area.
39. Can I get a mortgage in the United States? Yes, there are a few lenders that can provide our clients with mortgages in the United States. Usually, these mortgages are highly scrutinized and clients have to qualify for them without considering the potential rental income the property may provide.
40. What terms and conditions should I be asking for in my mortgage? One of the things borrowers often overlook is the terms and conditions of their mortgage agreement. Things like prepayment options, payment frequency options, penalties for breaking off the mortgage, penalties for missing a payment, options for skipping a payment and many more. Borrowers need to consider what options they may need to use and find a mortgage that will give them the right amount of flexibility.
41. What options are available for paying my mortgage? Make sure you have the ability to choose to make your payments weekly, semi-monthly, bi-weekly, accelerated bi-weekly or monthly. Some mortgage companies have very limited options here, especially when it comes to mortgages with very low rates.
42. Can my mortgage be tax deductible? There are a few complex, high-level strategies that can help you make your mortgage tax deductible, even if it’s your principal residence. This does not apply to everyone, but if you do qualify, you could shave up to seven years off your mortgage – and save thousands of dollars in interest payments.
43. Can you help me pay down my mortgage seven years faster? Tax-deductible mortgages are a great way to pay down your mortgage up to seven years sooner. They can also help you create a nest egg.
44. Can I pay down my mortgage faster without paying anything extra? A tax-efficient mortgage plan can help you pay down your mortgage, save for your retirement and avoid paying any more than your mortgage payment out-of-pocket. This strategy requires a re-advance able home equity line of credit, an investment strategy and a good accountant and mortgage broker. If you are serious about this strategy, call me directly.
45. Do I have to pay for legal and appraisal fees when I refinance? As long as you are not taking out any extra money, we have lenders that will pay for the legal and appraisal fees.
46. What value does a mortgage broker bring? We can help save you time, money and effort – and help you avoid the headache of shopping around for the best rate.
47. What makes you recommend a specific product? I recommend products because of things my clients tell me based on their immediate and long-term needs.
48. What are the penalties for breaking a mortgage? There are some major banks that have large penalties for breaking a mortgage early. Beware of ultra-low rates, as these tend to have the highest penalties. Not all banks are created equally, and not all mortgage products have the same penalties. Use a mortgage broker to help you decipher which options are best for you. My advice would be to read the fine print when signing your commitment documents. Typically, if you have a variable rate mortgage, and you are in a 5 year term but want to break it after 3 years, the cost would be 3 months interest penalty. If you are in a fixed rate mortgage, it would all depend on when you got your mortgage. and when you are deciding to break it and what the rates are at that moment. For example, if after 3 years, your rate is 5%, and the current bank rates are at 3.50% at the time you wish to break your contract, then you have to pay the difference between 5% and 3.50% in interest penalties back to the bank. As stated before, it all depends on when you get your mortgage, and who your bank is.
49. What is a HELOC Mortgage ?
HELOC`s stand for (home equity line of Credit). These mortgages use the equity you`ve built up in your home as a line of credit. This allows you to access this equity and use it to pay down unsecured debt, renovate your home, or simply to buy a second property. This product is ideal for borrowers that need flexibility.
Good luck on your next home purchase. If you have questions, we’re here to help. We can connect you with a great mortgage broker.