Jun 28, 2018
Picture this: you’ve been house hunting for months when you come across ‘the one.’ You make an offer on your dream home and it’s accepted. Congratulations, you’re almost a homeowner! But what about choosing the right mortgage provider?
After all the work involved in house hunting, it can be tempting to treat your mortgage as an afterthought, but I wouldn’t recommend that. Your mortgage should be one of your primary concerns because if you’re like most Canadians, a mortgage will be the single biggest debt of your lifetime.
Many Canadians pick based only on the rate when choosing the right mortgage provider. This is a mistake because it’s like buying the on the lot while ignoring other important factors like reliability, customer service, and warranty. The lowest mortgage rate can save you hundreds, but the wrong mortgage product can cost you thousands.
With so many options to choose from – banks, credit unions, and monoline lenders – it can be confusing if you’re a homebuyer or looking to refinance or renew your mortgage. But, it doesn’t have to be. Here are some important factors to consider (besides just the mortgage rate!) for choosing the right mortgage provider for you.
As Canadians, it could be said we prefer reliability instead of risk. For that reason, many of us go with the safety and security of the 5-year fixed rate mortgage. The 5-year fixed rate mortgage makes sense for some, but it’s not for everyone. While it’s true that you get the peace of mind of in knowing that your mortgage rate will be the same for the next 5 years, 5-year fixed rate mortgages often come with significant mortgage penalties.
“I’m not going to break my mortgage,” says almost every homebuyer when first signing up for a mortgage. But in reality, 6 out of 10 homebuyers will break their 5-year fixed rate mortgage at some point. That’s why it’s important to ask about mortgage penalties up front.
We break our mortgages for many reasons – a job promotion, job relocation, marriage, divorce – the list goes on. If you think there’s a chance that you could break your mortgage, we’d recommend going with a lender with fairer mortgage penalty, otherwise, it could end up costing you dearly later on if you break it.
If financial freedom is important to you, you’ll want to choose a mortgage with flexible prepayment privileges. Some mortgage providers are super flexible when it comes to prepayments, while others – not so much.
Many closed mortgages allow prepayments, but the frequency of prepayments varies between lenders. For example, some lenders let you make lump sum payments on any of your regular mortgage payment dates, while others only let you them once a year on your mortgage anniversary date. I don’t know about you, but I’d rather be able to prepay whenever I have some extra money.
The amount you can prepay also varies between lenders. For example, some lenders let you prepay 10 percent as a lump sum payment and increase your mortgage payment by 10 percent, while others let you pay 15 or 20 percent. The bottom line: it might be worth paying a slightly higher rate when choosing the right mortgage provider if it means more flexible prepayments.
When choosing the right provider, you’ll want to find out if it comes with a standard or collateral charge. The number one piece of advice when your mortgages come up for renewal is to shop around. But if you have a collateral mortgage, it’s a lot more difficult.
With a standard mortgage, if you decide to switch lenders once your mortgage is up for renewal, all you’ll have to pay is a discharge fee of about $300 (which your new lender will often cover). But if you have a collateral mortgage, you’ll have to pay additional legal and appraisal fees of about $1,400, on top of the $300 discharge fee.
Lenders know this, so how likely do you think your lender is to offer you its best rate upon renewal? Not likely. That’s why in many cases you’re better off going with a mortgage with a standard charge, so you have the freedom to shop around for the best mortgage product at the end of your mortgage term.
These are just some of the factors to consider. Mortgages are more complicated than ever these days – that’s why it helps to speak with a . A mortgage broker is an unbiased mortgage expert who looks at your financial needs and helps you in choosing the right mortgage provider. Best of all, the mortgage broker’s advice is free. The broker is compensated directly by the lender, so there’s no extra cost to you.
About the Author
is the bestselling author of the book, . He bought his first house when he was only 27 in Toronto and paid off his mortgage in just 3 years by age 30. An in-demand Personal Finance Journalist, Money Coach and Speaker, his articles and blogs have been featured in publications such as the Toronto Star, Globe and Mail, Financial Post, Tangerine: Forward Thinking blog and MoneySense. Connect with Sean on , , and .
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