Whether you’re a first-time homebuyer or you’re renewing the mortgage on your existing home, you have a decision to make: where to get the best deal on your mortgage.
The default option for many Canadians is to get their first mortgage from their local bank branch, then just keep renewing it with the same bank every five years. This approach is easy, but it has some major flaws that could cost you tens or even hundreds of thousands of dollars over your lifetime.
A popular alternative is to use a mortgage broker. A mortgage broker does not work for the bank. He or she works for a mortgage brokerage that has access to many lenders, including banks, credit unions, and dedicated mortgage lending companies. Your broker’s job is to shop around and find the best mortgage for you from all of the available options.
When you use a mortgage broker, there’s still a chance you’ll end up with a mortgage from your favourite bank – but only if they have something great to offer you. Your broker will help you sift through all the options and help you decide.
Here are some of the advantages of working with a mortgage broker:
If you’re busy with work and family, you probably don’t have a ton of free time to sit down with the mortgage specialist at your bank. If you wanted to comparison shop with two or three other banks, you’re now talking about a major time commitment. Not to mention the challenge of comparing all the features, benefits and fine print of the various lenders (trust me, it gets confusing quickly).
A mortgage broker will do all the shopping and comparing for you. You’ll be presented with an option or two that make the most sense, and you’ll have someone who can explain all the ins and outs so you can make a decision without needing a Ph.D. in personal finance.
There’s a lot of misleading advertising from lenders trying to bait people with low-interest rates. A mortgage broker can help you figure out what’s what and, in many cases, will be more successful in finding and negotiating the best rate for you.
While the rate is very important, it’s not the only factor to consider in the overall cost of a mortgage. For example, different lenders have different rules about how much you can prepay and when, or what happens if you need to skip a payment.
Even more significant are mortgage breakage fees. Life happens, and a great number of people end up breaking their mortgage before the maturity date. If you have a variable rate mortgage, the breakage penalty might be a few thousand dollars. If you have certain varieties of fixed rate mortgage, the penalty could be in the tens of thousands of dollars. A good mortgage broker will make sure you understand all of these details before you sign.
Nothing’s worse than needing a mortgage and having trouble qualifying. The major Canadian banks tend to have the least lenient lending policies and can be especially befuddled by people with non-standard situations, such as those who are self-employed or those who are financing an investment property.
This is another area where a broker can help. With access to the big banks as well as the smaller and more specialized lenders, your broker has a lot more options to get you the financing you need. Sometimes people find they can start with a short-term mortgage from a specialized lender then switch to a mainstream bank once they are more established. A mortgage broker can make this type of scenario possible.
A home may be the largest purchase of your life, and a mortgage is a huge financial commitment. It’s generally a mistake to accept the first offer that comes along or the standard house-brand mortgage from the bank you’re used to dealing with. There is zero risk in exploring a wider range of options, and you need a mortgage broker to do that.
Be aware that mortgage brokers work on commission which is generally close to 1% of the value of your mortgage. So, for example, a $400,000 mortgage comes with a $4,000 commission cheque for the broker. This creates an incentive for them to get you the biggest mortgage they can. It’s up to you to make sure you don’t overstretch yourself as a result.
The best news is this: If you’ve built a financial plan with Planswell, you have unlimited access to our team of mortgage brokers. These folks are salaried professionals, not commissioned salespeople, so they will never push you to borrow more than you should. In fact, everything we recommend is designed to encourage your overall financial success.
We promise to make the mortgage process as quick and painless as possible, saving you time, money and grief. If you’re in the market for a new home or just a new mortgage, book a time to chat with us today.