What bank is your mortgage better off with?

What bank is your mortgage better off with?

“Am I better off with a big bank for my mortgage?” 

This is a question that is frequently asked by property buyers when it comes to choosing a mortgage lender.

The answer, however, is very subjective as things like mortgage servicing, access to products and penalty calculations have to be considered when picking the best lender for your mortgage.

Do you need a branch?

One advantage that big banks offer over smaller mortgage lenders (monoline lenders) are the “bricks and mortar” branches. Some people prefer to have a face-to-face conversation with a bank representative when servicing or making changes to their accounts.

Something to keep in mind is that once people get their mortgage, they make their payments like they are suppose to and return to the bank only when the mortgage is up for maturity. Thus, never really utilizing the “face-to-face” experience they thought they would need.

Smaller lenders do not offer face-to-face experiences for clients. However, most smaller lenders provide online access to mortgage features such as pre-payments, changes in payment schedules, and remaining balance, that you would otherwise utilize a big bank branch to access.

Thus, consider if you are looking for fast access to information, simplicity and how hands-on you’d like to be with your mortgage when choosing a service level.

Penalties:

This is something that many home buyers don’t consider as most are focused on getting a good rate or long-term, when it comes to their mortgage.

Most banks have a portability clause that will let you transfer a mortgage over to another property if you decide to move. This comes with restrictions that vary between lenders, big and small. In the event that you cannot or do not want to port, it is important to understand how penalties are calculated.

Variable rates:

With variable rates, the norm is three months’ worth of interest. There are some lenders that will reduce their interest rate by 0.10%-0.20% (on average) but will charge 3% of the balance as a penalty if contract is broken. For people who are planning on staying in their new home for at least the next five years, this is a great option. This is because the lender will let you convert to a fixed rate mortgage without any penalties and will also normalize the penalty if you decide to refinance with them given their clients some more options while saving on interest costs.

Fixed rates:

When it comes to fixed rate mortgages, penalties are calculated in one of two ways, whichever of the two is greatest.

The first is the three months’ interest and the second is an interest rate differential (IRD) calculation that will determine how much interest the lender is loosing by letting someone break the contract. The lenders do this by using the current balance, time left in term and the interest rate for the closest term to what is left (to compare what they would have to lend it out to).

What big banks do that most smaller ones don’t, is use their posted rates as oppose to the best rates to calculate this penalty. Believe it or not, this can easily add an enormous cost to breaking your mortgage.

Products

Most big banks will provide access to a secured line of credit against your home, assuming you qualify and that there is enough equity in your home to being with. This may, later on, save you thousands if you decide to renovate, invest, pay down high interest debt, etc.

Most smaller lenders do not offer access to secured line of credits, or have options for bank accounts/investments to keep them all under “one umbrella”. Over the last little while, this product offering has been shifting, however.

The ability to keep all mortgage and financial dealings in one place is something that matters to some but not to others.

Rates

Big banks may offer special terms to attract new business on case-by-case basis. They look to manage and balance their portfolio with other business lines within the same bank.

Small lenders only lend out and do not have other business lines to worry about. Because of this they have to be very competitive with rates in order to generate business and they are also very competitive at time of renewal.

Features

This has really no bearing whether you are a big or a small lender. However, I’m a believer that:

the interest you get is not the same as the interest you pay.

Features vary from bank to bank, even the big ones, and it’s important to know how they will affect you.

Some lenders will let you pre-pay at any time, saving you the interest cost compounded over the amortization of your loan. Other lenders, will only let you pre-pay on your anniversary date. For example, if a day after your funding day or anniversary date, you got a bonus and wanted to pre-pay your mortgage, you wouldn’t be able to. You literally would have to wait 364 days in order to make the pre-payment thus costing you 364 days of unnecessary interest.

Another feature that needs to be considered is the maximum amortization. Yes, 35 years is still available for some borrowers. And no, not all banks will force you to take a collateral charge as oppose to a standard charge (even within the big banks).

Which is best for you?

 

which bank is best for your mortgage?

I encourage everyone looking to buy, refinance or renew their mortgage to focus on both the short and long term goals. Ensure that the lender you choose will not impede on these goals and if they do, then they’re not the right fit for you.

The best mortgage is the one that lets you sleep at night, as it is very subjective in nature.

 

This post was written by Christopher Darwiche of Vine Group Mortgage Alliance, broker #10530.

Vine Group and Darwiche & Co.

7 Insider Tips from a Mortgage Broker You Need to Read

7 Insider Tips from a Mortgage Broker You Need to Read

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.

get a better mortgage rate

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.

 

There are many ways to save money, reaching out to a mortgage broker, is one of them. If you have questions, would like additional information or want to know existing mortgage rates in Ontario, visit Christopher Darwich’ website .