While dealing with client inquires on a daily basis, I realized that there are about a dozen questions that I consistently get asked.
Knowledge is power so we thought I should share those questions and answers with you today!
1) What is the lowest mortgage rate?
The lowest mortgage rate does not save the most money. Choosing a mortgage is choosing a strategy that helps pay less interest to own a home sooner and the lowest rate is only part of that formula. Do not confuse the lowest rate with paying less interest. Many do not realize that a .1% lower rate saves only a couple hundred dollars per year on a typical mortgage. A good mortgage strategy should save a few thousand dollars of interest per year.
2) What is your best 5-year fixed rate?
Considering the current economic conditions, choosing a 5-year fixed mortgage is a weak financial move. Rates will rise eventually as the global economy recovers, so having your mortgage come up for renewal in five years is poor timing and is not taking advantage of today’s all time historic low fixed rates. There are no statistics or data that support taking a 5-year fixed mortgage, yet it is the product the Banks promote specifically with the goal to make more money. A better option is to consider a short-term mortgage that comes up for renewal sooner while the economy is still weak and mortgage rates are still low, or opt for the long-term security of the 10-year mortgage.
3) May I get a 30 Year amortization?
Anyone with less than 20% down payment does not qualify for an amortization of more than 25 years, and at today’s mortgage rates that translates to about $45/month for every $10,000 borrowed. When a borrower has 20% down or more they are allowed to choose a 30-year amortization which translates into about $40/month for every $10,000, borrowed. A lower amortization is the result of how much extra money you choose to pay toward your mortgage principle at any given time.
4) When are interest rates going up?
Please do not believe anyone who tells you rates are going up or down…because nobody can predict the future and economic conditions can change very quickly. Most of us feel that the weak global economy will eventually improve but not anytime soon. Using simple consumer logic, we realize these crisis rates can’t last forever and therefore are expecting that in the next few years’ interest rates will rise gradually to more normal levels – once there are consistent indicators that the global economy is improving. We can all agree rates will go up… it’s only a matter of time.
5) How much do I qualify for?
How much one qualifies for is relative. Some Banks will lend you more, while others will lend you less. Everyone’s financial situation is different, so it is important to establish a monthly budget that works for you and your family, while ignoring how much the Bank wants to lend you! Most consumers tend to qualify for more of a mortgage than they actually need. The general rule of thumb is that the Bank will approve a mortgage equal to 5 times the gross household income. At Mortgage Architects “We design a mortgage around you” and not what the lender is suggesting you borrow.
6) What mortgage term do you recommend?
There are no right or wrong mortgage terms or products because everyone’s financial ambitions and tolerances vary. A mortgage term should accommodate your personal profile and budget expectations. Both short-term and long-term mortgages are sound choices yet one type of mortgage can’t possibly suit everyone. One size does not fit all. Please be wary of Bankers that are suggesting a basic 5-year fixed mortgage to everyone. Currently most borrowers are opting for the long-term security of a 10-year mortgage at about 3.79% where this long-term strategy 100% guarantees no payment shock for a long time.
7) Why don’t I just call my Bank?
Banks do not want you to shop around and compare because your Bank is only a mortgage supplier and not a “mortgage educator”. A mortgage broker is a mortgage shopper just like you but is much better at it. Like you, mortgage brokers are consumers wanting to make an educated choice and save more money. All borrowers want to be treated fairly and not be taken advantage of. The first step is for you to determine your best “Mortgage Plan” and then match it up with the appropriate lender. Having a Bank choose your mortgage is like having monkeys watch over your bananas. Renewal time is a particularly important time to seek out some independent advice.
How do you get paid?
Mortgage brokers are paid by the lender that you and your broker select to place your mortgage with (oac). There are no fees or penalties and you usually get a lower mortgage rate too! More importantly, you get a mortgage planning education that would otherwise take you weeks to formulate on your own. Referrals are important to the broker who hopes that you will introduce them to others wanting to save more money on their next mortgage. It really is win-win for both parties. Some may suggest that there are hidden fees when you use a broker, but that is simply not true – legally it is a requirement that all costs are disclosed to the borrower.
9) What if I can get my Bank to match your rate?
Your Banker will likely match a mortgage rate you worked hard to find elsewhere, but all lenders are not the same. There are currently 50 mortgage lenders in Canada. If they all are posting the same rate you are likely curious how they vary. The terms, fees, conditions and policies of the actual mortgage contract can significantly affect the true cost of your mortgage, or in other words increase the effective interest you are paying. The devil really is in the details – Be aware of what you are signing up for. Anyone we know who is upset with their mortgage is usually as a direct result of learning more about the mortgages policies after closing, which is to late.
10) Where can I get the best variable rate mortgage?
Historically 5-year variable rate mortgages have performed best and it was all that we recommended for many years. Having said that, lenders have collectively agreed to no longer heavily discount variable rate mortgages, thus making them less attractive when considering fixed rates have reached an all time low. It is possibly that in the future variable rates will have big discounts again, but for the time being most are avoiding them. If and when you choose to convert a variable mortgage to a fixed term, the fixed rates being offered currently are not typically the best fixed rates available.
11) Will another lender pay my discharge penalties?
Every lender will be glad to pay your discharge penalty, or waive your discharge penalty, but you should also expect a higher mortgage rate as well. Nothing is for free when dealing with Banks, so in most cases it is effectively cheaper to pay your own fees and penalty and simply take the lowest mortgage rate. When choosing to pay a discharge penalty, it is important to receive unbiased advice to insure that the penalty has been calculated fairly and that there is a benefit to paying it.
12) My Bank is calling me early about my renewal and what do I do?
Banks are very eager to renew your mortgage early, in hopes that you do not do further research and find a more appropriate mortgage elsewhere. Renewal time is an important time to “pause” and to ensure your mortgage is financially effective. You should not only be looking for the best interest rate at renewal. You should also take the time to revisit how your mortgage is structured and determine if it is addressing all your current financial needs? Renewal time is often an opportunity to upgrade your mortgage to a product that is more sophisticated and that could possibly include a line of credit component. Also be aware that at renewal time, most lenders tend not to offer their best rates!
These are only 12 of the most common question I hear, but there are plenty of others we have not covered. I invite you to email me anytime to ensure you are being given the correct mortgage information and advice. My responsibility is to ensure everyone we come in contact with is well informed and treated fairly. If you know of anyone who would like to save more money on their next mortgage please introduce them to me.
Here is to a prosperous 2013 for all.
Are you a potential first time homebuyer looking to get the keys to your first place? Well your first step is to get pre-approved for a mortgage.
How? I’ve put together a five-part free email class that spells it out, step-by-step. Sign up below: Each one gets delivered to your email inbox hot & fresh about every 3-4 days. It it you’ll learn:
- Why you should get pre-approved now
- The nuts and bolts of mortgage pre-approval
- The documents you need to organize