Table of Contents
What does a Mortgage Broker do?
A good mortgage broker will first and foremost listen to the needs of their clients to better understand their situation. This involves finding out about their immediate and longer term objectives for housing, their general knowledge of the mortgage process and their current status in that process (e.g. wanting to get pre-approved, already purchased, their mortgage is coming up for renewal, etc.). The next step is to review the clients’ financial information including income, employment, debts, down payment, credit report, and other factors. With this information, a broker can determine which financing options are available to the clients, based on products and lenders that match their criteria. Based on all of this research a broker will provide clients with a financing strategy that suits their needs and also discuss options such as which lender to consider for their financing and why. The key ingredient in this process is helping to educate the client about their choices, as needed, and determining a strategy that addresses a clients specific circumstances.
How is a Mortgage Broker different than going to the bank?
If you go to a retailer that carries only one brand, you will be limited to only those products in that one store. The same applies when you go to your bank. They can only offer you their products, but nobody else’s. Mortgage brokers offer financing solutions from banks as well as many other lenders, giving the consumer the option to compare their choices across multiple brands and therefore multiple solutions. Brokers work directly with Banks, Credit Unions, Monoline Lenders, Commercial lenders and Private lenders. Simply put, Brokers are your one-stop-shop for upwards of 30 different lenders, which means you have access to all of those products as well. Because of this, brokers often have solutions for clients that they might not get at a bank.
Are the financial services a Mortgage Broker uses less than what a bank can offer?
No, in fact, the opposite is true since clients will have the benefit of learning the details of multiple lenders, multiple mortgage products and multiple financing strategies whereas a bank will offer only their brand of products and services.
Does it cost to use a Mortgage Broker?
For the vast majority of situations, the answer is “No”, because Brokers usually get compensated directly by the lender in the form of a finders fee. A Broker might charge a fee if they are working with a private lender or a specific type of mortgage product that is not offered by most other lenders. A Broker must disclose to the client in writing if they are charging a fee in accordance with Provincial regulations, and the clients must acknowledge that by signing the form as well.
I hear about “features” in a mortgage - what does that mean?
By definition, all mortgages are “closed”, meaning you cannot make changes to them without incurring a penalty or cost of some kind. Mortgage features such as prepayment privileges or lump sum payment privileges allow for changes in payment terms to be made without penalty or fee. Other features in a mortgage can include a line of credit (often referred to as a HELOC), cash-back mortgages, interest-only mortgages, and so on. There are also programs offered by insurers like CMHC, Genworth or Canada Guaranty that offer consumers access to unique features such as the Purchase Plus Improvements, Stated Income deals, flexible down payment features, home warranty features, and more. Not all lenders offer the same privileges or programs, so it’s important to speak with a broker that has access to, and knowledge of, these many options.
Are mortgage features important?
Mortgage features are incredibly important, and should always be understood and reviewed with your broker to ensure you are getting the most out of them. Sometimes a specific feature can mean the difference between getting an approval or not, or paying down your mortgage faster than you otherwise might be able to, saving potentially thousands of dollars in interest over time.
What is a fixed vs variable mortgage?
A fixed rate mortgage is one where the interest rate does not change at all during the term of your mortgage and is determined almost exclusively by the bond market. A variable rate mortgage has an interest rate that can go up or down during the term of your mortgage and is based almost exclusively on the Bank of Canada overnight lending rate (the rate at which the Bank of Canada lends money to other financial institutions).
How often do I have to make my mortgage payments?
The minimum payment requirement is monthly, although most mortgages allow you to choose a payment frequency of monthly, semi-monthly, bi-weekly, accelerated bi-weekly, weekly or accelerated weekly. The more frequent your payments are, the quicker you pay off your mortgage over time.
Should I be worried about paying off my mortgage?
That depends in part on your financial situation, your personal circumstances and also your financial strategy. Your financial situation may mean that you are living from one paycheck to another, with not much left over once all your bills and necessities are paid for. If you intend to stay in your house after you retire, it is definitely important that your mortgage is paid off before then since you will otherwise not have enough income to pay your mortgage. Your personal circumstances may determine the answer to that question as well, for example, if this is your first home and you are just starting your career or if you are buying an investment property and can write off some of the mortgage interest and associated costs. Finally, some people don’t want to pay off their mortgage in a low interest rate environment because they can make a higher return on their money by investing it in other things like commodities, bonds, etc. In all cases, it is important to manage your risks versus the rewards and speak to your broker about your options.
My father keeps saying money is cheap now. What does he mean?
Borrowing money in the form of a mortgage or line of credit is tied to current interest rates. At this time (2020), we are seeing some of the lowest interest rates ever available in Canada, meaning that the amount you pay in interest on borrowed funds is extremely low. In this regard, money is considered to be cheap.
What is a mortgage term?
This is the time period that your mortgage is set at a particular rate (fixed or variable). At the end of this time period the mortgage can either be renewed, paid off entirely, or switched/transferred to another lender. Terms typically range from one year to ten years, with the most popular term being 5 years.
What does amortization mean?
Amortization refers to the period of time in which the mortgage is repaid. The most common amortization period is 25 years, although 30 year amortization periods are possible under certain circumstances.
What documents do I have to provide for my mortgage application?
This depends in part on whether you are salaried or self-employed, the amount and source of the down payment and whether you are purchasing or refinancing. Your broker can guide you through the requirements once they know a little bit more about your particular situation.
I think I have bad credit from not paying off a credit card. Will that prevent me from getting a mortgage?
It depends on the actual score, how long ago the occurrence was and your current repayment history, amongst other things. While a bad credit score may not get you the best rates, it is not a hopeless situation. Credit is one factor among many that a lender uses to decide on whether or not to approve your loan application. There are many tools available to help improve your score and your broker can explain them to you. Most important is that going forward, you continue to pay your obligations on time, every time, and also not to add to your debts or seek additional credit while trying to improve your score.
I’m really embarrassed about how bad my finances are; what will my Mortgage Broker think of me?
There are many reasons why people struggle with their finances and please know that you are not alone in this. Part of a good brokers role is to determine what can be done to assist you not only now, but also in the future, by providing education and knowledge to get you back on the right track.
Do I have to have mortgage insurance? What does it do?
Mortgage insurance falls into two categories; 1) default insurance and 2) life/disability insurance. Default insurance is mandatory if you are putting less than 20% down on the purchase price, and its cost varies depending on how much you are putting down. It protects the lender in case you default on your mortgage. Life/disability insurance is not mandatory. It is offered to you by the lender or a third party insurer. In the event of the mortgage holders’ death or disability, the insurance either pays off the loan entirely (life insurance) or continues to pay the mortgage and property taxes until you are able to return to work (disability insurance). A house is typically the largest asset we have, so making sure you are prepared in the event of unforeseen circumstances is extremely important and should be discussed with your mortgage broker and/or your insurance broker to determine your options.
What's A HELOC
A Home Equity Line Of Credit (HELOC) is a loan in the form of a line of credit that is secured against your house, the same as your mortgage would be. Because of this additional security, a HELOC is charged at much lower interest rates than an unsecured line of credit. The maximum HELOC you can get is 65% of the value of your home. You can have a mortgage component and a HELOC at the same time as part of your total loan amount.
I’m new to Canada; will I be able to qualify for a mortgage?
Canada has some very favourable products specifically designed for new immigrants that make it easier for them to qualify for a mortgage. Since individual situations differ greatly from one another, speak with your broker to find out all the options available to new immigrants.
What does “porting” my mortgage mean?
Porting your mortgage means that you are taking the existing balance, interest rate and terms from one property and moving it to another property. This is usually done when selling one property and moving to another. This allows you to keep the same terms of your existing mortgage without having to break your current mortgage. Conditions do apply when porting your mortgage, so make sure you find out the details well in advance.