You’re buying your first home, refinancing or getting a second mortgage. Do you know what a mortgage broker does and how s/he can help you? More often than not, people don’t know or fully understand, the value of an agent. In short, a mortgage broker shops the market for you and has a strong understanding on mortgage financing rules and exceptions that are available to you. For example, did you know that the same rate with two different lenders can actually cost you more with one over the other? Or that at the branch level, more often than not, they start at their standard rate and expect clients to negotiate down where agents/brokers have immediate access to the lower rate without haggling?
It’s okay if you didn’t because you’ve got your own career and life on the go and I’m enthusiastic to share the following real estate mortgage scoop from Christopher Darwiche, a Toronto-based mortgage agent with Mortgage Alliance.
When you choose a 5-year, fixed-term for your mortgage, you can qualify by using the contract rate to determine payments. However, if you go with a variable term or a fixed term shorter than 5 years you would have to qualify using the Canada Benchmark Rate which is higher than discounted 5 year terms at the moment. Thus, lowering the affordability and reducing the mortgage amount.
While shopping for a mortgage, you could lower your rate if features like pre-payments and penalties are not important to you .
Some banks when calculating the IRD (Interest Rate Differential) use their posted rate while other use their best discounted rate. This may potentially save you thousands of dollars if you decide to break your closed term early.
Some banks will let you pre-pay once a year, others on your anniversary day, and a minimum amount, or a combination of all three making it less flexible and more expensive for you. It’s similar to someone telling you “I know you owe me money and you can pay me a portion back today, but I would prefer if you paid me later so I can make more interest from you”. However, some banks out there that will let you pre-pay any day and or with more flexible options saving you money in the long run.
Lenders will sometimes give discounts on the rate if closing within 30 days rather than 120 days because rates are more predictable in the short term that in the long term or sometimes because they are simply trying to gain market share in a given month.
When you make accelerated bi-weekly payments you are in essence making two additional payments a year helping you reduce the amount of principal and the overall interest cost of your mortgage.
A Collateral Lean, as oppose to a standard charge, cannot be switched from one lender to another. Meaning that at time of maturity, you would have to pay for a new appraisal, legal and discharge fees if you would like to switch lenders. The lender with the collateral lean know this and tend not to be competitive at renewal time because they feel that as a borrower, you will be deterred from switching and incurring fees.