Mortgage Homework

Most first-time home buyers I work with are better prepared then they think. There is a wealth of information available at their fingertips so by the time they call for a mortgage preapproval they’ve already started researching the home buying process.

There is so much information available that for some it becomes overwhelming.

One of the things I’ve said since Day One as a mortgage broker is that I want my clients to understand the process and be confident with the decisions they make. I want them to feel comfortable asking me any questions that come up.

On the flip side of that is the fact that I want to be confident that I am providing the best advice based on their situation, so I pre-screen my clients and ask for certain information upfront

I get calls daily that start with “What’s your best rate?”.

Three years ago that was an easy question to answer. We had one rate sheet and (with a few exceptions) providing a rate quote was pretty simple.

After the mortgage rule changes in October 2016 and January 2018, providing the best rate is a more involved conversation. I have six pages of rates to go through and want to make sure I have the right fit.

Rate is only one piece of the mortgage puzzle, and I don’t want to misquote a rate that I can’t get for a client when they have an accepted offer on a home.

It is as important for your mortgage professional to do their homework as it is for you (as the client) to do yours.

For instance, if you are considering buying a home and using a Purchase Plus Improvements product, there are certain lenders who have low rates but don’t offer this program.

If you are writing an offer on a home on leasehold property in West Kelowna, there are a select few lenders that will provide mortgages.

If you are needing to use your Child Tax Benefits to qualify for the mortgage, there are only a few lenders that will use that income.

If you have student loans outstanding, lenders factor payments differently which can make or break an application.

If you are self-employed and have done some creative accounting we are likely looking at a different mortgage product.

Buying a home is the largest investment and financial commitment many people make. It is easy to get caught up in the excitement and make a rushed decision based solely on interest rate.

Sometimes the best rate or advertised specials may cost you dearly in the long run.

Many lenders offer two similar rates. As a generalization, the ones I see are .05 per cent apart. On a $400,000 mortgage the interest savings is $943.22 over the five-year term.

If the lower rate mortgage comes with restrictive clauses such as a higher pre-payment penalty or the requirement to sell their home to get out of the mortgage I make sure clients understand the consequences of choosing that lower rate.

Statistics show that two out of three mortgages are broken before the five-year mark. By broken I mean that the clients have either sold or refinanced, so have had to pay out the original mortgage.

If they have chosen one of the low rate mortgage products this can mean a significant penalty.

Last summer I worked with a young couple who had chosen the lower rate as they were convinced they would be in their home for the long term.

They found themselves in financial distress when her position was eliminated and it took almost six months for her to find a similar job at the same rate of pay.

Their lender did refinance their mortgage to consolidate their credit cards and loan, but because they had chosen the low rate mortgage they had to pay a penalty of $3400 to do it.

Had they chosen the rate that was .05 per cent higher, there would have been no penalty involved.

With rates dropping over the last two months, another consideration for people purchasing a home is what the lender’s policy is for dropping your rate after your initial approval but before your mortgage closes.

A physician friend of mine groans about patients who use Dr. Google to self-diagnose before they book an appointment. The internet is a great tool for research, but it is also important that you work with a professional who takes their time to get to know you and does their homework to find the right mortgage for you.

Finding the right mortgage can save you thousands in the long run