Whether you’re buying a new Waterloo Region home or renewing or refinancing your current mortgage, a mortgage broker can help you get the best deal on a mortgage. Just like realtors are experts in real estate, a mortgage broker is an expert in mortgages. They shop for mortgages on your behalf and can answer all your questions during the process. They can also help you figure out how much mortgage you can afford. But what questions should you be asking?
Your mortgage broker will probably ask you all the things they need to know to get you the right mortgage. But asking your own questions can help you get peace of mind to make sure you know your mortgage inside and out.
Can I get pre-approved?
A mortgage pre-approval is exactly what it sounds like. Your mortgage broker will take some detailed information about your income, credit and down payment, and give you a letter stating the mortgage amount you’re approved for.
You will also be given a mortgage rate that’s locked in for anywhere from 90 to 120 days to give you time to look for homes. If rates go down by the time you apply for your mortgage, you’ll get the better of the two. If rates go up, you will still be approved at your pre-approval rate.
Having a mortgage pre-approval in hand is invaluable while house hunting. It tells you – and the home seller – exactly what you can afford, and it can be a bargaining chip if you need it. However, there’s a chance you’ll be pre-approved for a lot more than you actually want to spend. Think carefully before revising your original budget upwards however, as just because you were approved for a higher loan amount does not always mean you can truly afford to pay it back.
What’s the best mortgage rate you can get me?
Mortgage rates depend on a number of factors, but the most important are whether the mortgage is insured and the length of the mortgage term.
Mortgages with a down payment of less than 20% require the buyer to purchase CMHC insurance, which protects the lender in case of default. This extra layer of security for the lender allows them to offer lower interest rates than on mortgages that aren’t insured.
The most common mortgage term length in Canada is five years. But fixed mortgage rates are often lower with shorter terms. For example, a British Columbia mortgage broker can get you today’s best BC 5-year fixed mortgage rate of 3.04% but a 1-year fixed term can be had for 2.79%.
Your mortgage broker can help you understand the benefits and drawbacks of taking a shorter mortgage term in order to get a better rate.
Can I make extra payments?
You may not be interested in making extra payments on a mortgage you don’t even have yet, but keeping the option open can help you save thousands of dollars in interest over the life of your mortgage.
Prepayment privileges, as they’re known, allow you to make extra payments on your mortgage. Most mortgages allow you to increase the amount of your monthly payment, make an annual lump sum payment, or both.
But not all mortgages are equal. Some lenders will allow you to increase your monthly payment by 100%, while some will only allow you to increase it by 15% and others, not at all. Your mortgage broker can help you find a mortgage with the prepayment privileges you need.
What is the penalty for breaking my mortgage?
Even if you have the best intentions, sometimes you need to break your mortgage early. If you decide to sell your home or need to refinance, you are likely to incur penalties if you do this before your renewal date.
The penalty itself can vary widely depending on the mortgage. With variable-rate mortgages, the penalty is usually 3 months interest. If you owe $100,000 on a mortgage at 2.20%, your penalty is $550. Easy.
But with fixed-rate mortgages, a tricky calculation called the interest rate differential, or IRD, comes into play. The IRD makes you responsible for the difference in the interest you would pay if you finished your mortgage term and the interest they would earn by lending the money out at current rates.
The trick with the IRD, however, is that it’s calculated based on the posted rate at the time you contracted your mortgage, which is typically 2-3% higher than the rate you would actually get. This trick can make the penalty for breaking your mortgage cost tens of thousands of dollars. Every lender uses a slightly different calculation, so your mortgage broker is the best person to help you crack the code.
Can you explain that to me again?
Your home is the biggest investment you’ll ever make. Your mortgage broker is helping you borrow hundreds of thousands of dollars that you’ll spend the next 25 years of your life repaying. It’s important that you understand all the details about your mortgage, and it’s your mortgage broker’s responsibility to make sure all your questions are answered.
If there’s something you don’t understand, keep asking your mortgage broker questions until you’re satisfied. You’ll be more comfortable knowing for sure that you have all the answers, and your mortgage broker will not be bothered by it. Mortgage brokers love talking about mortgages, it’s their job! So use the resource to its fullest and make sure you have all the information you need to make the right decision about your mortgage.