9 Most Important Things when Mortgage Shopping
9 Mortgage Shopping Tips
Mortgage shopping can be an overwhelming process, but here are 9 important things to consider when you’re looking for a mortgage:
1 – Interest Rate
The interest rate is the amount of money that you will pay to borrow the money for your mortgage.
It’s important to compare interest rates from different lenders because even a small difference in interest rates can have a significant impact on your monthly payments and the overall cost of your mortgage.
2 – Loan Amortization
The loan term is the length of time you will be making payments on your mortgage until it is totally paid off.
Typically loan amortizations are 25 or 30 years however, you can request a lower amortization period. **Sometimes lenders can offer a longer amortization period on conventional loans***
A longer loan term may mean lower monthly payments, but it also means that you will pay more interest over the life of the loan.
On the other hand, a shorter loan term will mean higher monthly payments, but you’ll pay less interest overall.
3 – Down Payment
Your down payment is the initial payment you make toward the purchase of your home. This is your “skin in the game”.
Generally, the larger your down payment, the lower your monthly payments will be.
It’s important to consider how much you can afford to put down and whether you can qualify for any down payment assistance programs.
4 – Closing Costs
Closing costs are fees associated with obtaining a mortgage and purchasing a home.
These can include fees for the appraisal, title search, and other expenses. In BC, lenders want to see 1.5% of the total purchase price available for closing costs so you will have enough to cover legal fees as well as the dreaded Property Transfer Tax (PTT). Learn PTT details HERE.
It’s important to ask lenders for a breakdown of their closing costs so you can compare them.
5 – Lender Reputation
You’ll want to consider the reputation of the lender you choose.
Look for a lender with a good reputation for customer service and a history of closing loans on time.
You can check with the Better Business Bureau and read online reviews to get an idea of a lender’s reputation.
Or you can simply ask Huber Mortgage for a recommendation. I work with over 50 lenders covering all types of mortgages. Each has its niche and I only work with the best.
6 – Additional Payment Flexibility
Would you like to pay off your mortgage earlier? Then it’s important to choose a mortgage that offers flexible prepayment options.
Prepayments allow you to make extra payments on top of your regular mortgage payments. This TIP is SUPER important and can save you thousands. Read More HERE
When selecting the right mortgage, it’s crucial to understand that some lenders offer more generous prepayment privileges than others.
While most lenders allow lump sum payments and increased regular payments, some also provide the option for double-up payments.
The frequency of lump sum payments can vary as well, with some lenders permitting them only once a year, while others allow them throughout the year.
Additionally, certain lenders limit lump sum payments to 10% of the original mortgage amount, while others allow 15% or even 20%.
7 – Penalty Assessment
Mortgage penalties are often overlooked when entering into a mortgage agreement.
See Huber Mortgage blog post on this specific subject for all the gory details – HERE
For variable rate mortgages, the penalty is typically equivalent to three months’ interest.
However, for fixed-rate mortgages, it’s crucial to determine whether the penalties are based on the posted or discounted rate, as this can make a significant difference.
Penalties cost Canadian borrowers thousands each year. A Bank of Canada statistic cites that 65% of Canadians pay these criminal penalties during the term of their mortgage. Let me help you avoid or lower these costs. It’s easy!
8 – Mortgage Portability
Can I transfer my mortgage?
If so, within what timeframe?
Does the lender allow “Blend and Increase” options when transferring?
Mortgage portability refers to the ability to move your mortgage from your current home to a new one.
Most lenders provide a window of 30 to 90 days for this process.
9 – Examining the Fine Print
Then there’s the fine print, which refers to the essential terms and conditions often hidden in small font. While it may be tempting to disregard the fine print, failing to review it carefully can have costly consequences down the line. By working with a reputable mortgage broker, asking the right questions and taking the time to read the fine print, you can protect yourself.
Here are some important questions to ask when shopping for a mortgage:
- Does this mortgage include a bona fide sale clause? Some mortgages with the lowest rates come with a bona fide sale clause, meaning that you cannot break your mortgage or switch lenders during the term without selling your home.
- Is this mortgage associated with a standard or collateral charge? (A standard charge only secures the mortgage loan detailed in the document, while a collateral charge secures your mortgage against your property as well.) In most cases, a standard charge is preferable. Opting for a collateral charge mortgage only makes sense if you plan to establish a Home Equity Line of Credit (HELOC) in the future. Otherwise, it’s best to avoid collateral charge mortgages, as switching lenders later on can incur legal fees of up to $1,000.
Conclusions and Further Thoughts
Allow us to assist you in finding the ideal mortgage for your needs. All these tips are mentioned because Canadians make these same mistakes year in and year out.
A discussion with Huber Mortgage can help you find the right mortgage contract for you and your specific situation.
By understanding your short and long term goals, I can find you a mortgage that will work for you and cost you the least long term.
Please contact me with any mortgage related questions 🙂 – HERE
Also, check out my free Home Buyers eBook HERE
Sincerely,
Michael
PS – One of my hobbies is blogging about mortgages, debt and government policy. During the day I’m a MORTGAGE BROKER in Kelowna, BC!
Check out the Huber Mortgage Home Buyers Guide HERE
