Top 5 important things when Shopping for a Mortgage
One of the worst mistakes a Homebuyer could make is not Shopping around for a Mortgage. Finding the right mortgage loan is just as important as the right house.
When shopping for a mortgage, you should to compare rates, as well as any other fees, costs, or discounts associated with the loan.
Let’s look at the most Important things when Shopping for a Mortgage.
1. Rates
Finding the best rate could save you a big chunk of money in your Mortgage. We recommend getting quotes from at least 3 and preferably 5 different lenders.
This might sound like a tedious task, however It can be done fast and easy in just a few minutes from the confort of your phone using the Canadian Mortgage App.
Interest rates and lenders’s fees could impact how much you pay, that’s why is really important to get the Rate that suits better your needs.
Let’s take a look at this example:
| Loan Amount | $600,000 | |
|---|---|---|
| 5-Year Fixed Rate | 1.89% | 1.94% |
| Monthly Loan Payment | $1157 | $1164 |
| Total Interest (Term) | $51,926 | $53,321 |
| Difference | --- | $1,395 |
2. Mortgage Term
The vast majority of Canadians sign up for five-year mortgage terms. But just because most Canadians do that, it doesn’t mean that you should, too. There are other mortgage terms besides five-year mortgage terms.
If you’re someone who’s super risk-averse and you’re confident this is your forever home, and there’s zero chance you’ll move in the next decade, a 10 term mortgage term might make sense. At today’s record-low mortgage rates, you could even lock in for 10 years of low rates.
However, if you’re someone who only sees themselves staying in their home for the short-term, you might consider only signing up for a one or two-year mortgage term.
You’re the one who knows your future plans best, so be sure to choose the term that makes the most sense for you.
3. Extra Payments Privileges
Do you want to pay down your mortgage sooner? Then you’ll want a mortgage with generous prepayments privileges. Prepayments refer to the ability to make extra payments on top of your regular mortgage payments.
Before picking the right Mortgage, it is important to know that some lenders are more generous than others.
Most lenders let you make lump sum payments and increase your regular payments. Some let you make double-up payments. Some lenders only let you make the lump sum payments once a year, while others let you make them anytime throughout the year. Some lenders only let you make lump sum payments of 10% of your original mortgage amount; others let you make lump sum payments of 15% or 20%.
Let’s have a look now how Extra Payments could help you to save even more money on interest than a lower rate:
| Loan Amount | $600,000 | |
|---|---|---|
| 5-Year Fixed Rate | 1.89% | 1.94% |
| Monthly Loan Payment | $1157 | $1164 |
| Total Interest (Term) | $51,926 | $53,321 |
| Extra Payment | --- | 20% |
| Difference | $148 | --- |
4. Penalty Calculations
People often ignore mortgage penalties when signing up for a mortgage. We already discussed mortgage penalties in a recent blog, so we won’t go too in-depth.
If you’re signing up for a variable rate mortgage, it’s usually just three months’ interest. However, if you’re signing up for a fixed-rate mortgage, that’s when you’ll want to know if the penalties are based on the posted or discounted rate, as it can make a big difference.
5. Portability
Can I port my mortgage? If so, how many days do I have? Do you allow me to “Blend and Increase” my mortgage when porting? Porting refers to the ability to move your mortgage from your existing home to a new home. Most lenders give up between 30 and 90 days to do that.
6. The Fine Print
Then there’s what we like to call “the fine print.” The fine print is all those important terms and conditions hidden in the little font. While it can be easy to ignore the fine print, it can end up costing you dearly later on. By working with a good mortgage broker, knowing the right questions to ask, and taking the time to read the fine print, you can help protect yourself.
- Here are some important questions to ask when shopping for a mortgage.Does this mortgage come with a bona fide sale clause? “Limited feature” mortgages with the lowest rates often come with something called a bona fide sale clause. This means that you can’t break your existing mortgage if you want to switch lenders during your term or refinance. The only way is to sell your home.
- Does your mortgage come with a standard or collateral charge? (A standard charge only secures the mortgage loan that is detailed in the document while a collateral charge is a method of securing your mortgage against your property). Most of the time, you’ll want a standard charge. A collateral charge only makes sense if you plan to set up a Home Equity Line of Credit (HELOC) later on. If you aren’t planning to do that, it’s best to stay clear of collateral charge mortgages, as it can cost you $1,000 in legal fees to switch lenders later on.
Let us help you find the best mortgage for you.
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