Whether you’re a first-time homebuyer or you’re renewing the mortgage on your existing home, you have a very important decision you’ll need to make when buying your home: where to get the best deal on your mortgage.
For most Canadians, the default options is to get their first mortgage from their local bank branch, then just keep renewing it with the same bank every five years. Sure, this approach is fairly easy, and the experience is great but it’s always best to do your research before committing to any one particular lender.
A popular alternative is to use a mortgage broker.
Mortgage brokers do not work for the big banks. Instead, he or she works for a mortgage brokerage that has access to many lenders, including banks, credit unions, and dedicated mortgage lending companies. The role of your broker is to shop around, finding you the absolute best mortgage for your situation from all of the available options.
When you use a mortgage broker, there’s still a chance you’ll end up with a mortgage from one of the big banks – but only if they have something great to offer you. Your broker will help you sift through all the options, help you comfortably decide on what’s best for your situation.
Here are some of the advantages of working with a mortgage broker:
Save time… lots of it
Rather than spending time on doing the research when it comes to rates, terms, and all of the other fun things, a mortgage broker will do all the shopping and comparing for you. You’ll be presented with an option or two, or even three that make the most sense for your situation. You’ll also have someone who can explain all the ins and outs so you can make a comfortable and informed decision without needing a Ph.D. in personal finance. Phew!
Save money… lots of it
There’s a lot of misleading advertising from lenders trying to bait people with low-interest rates. A mortgage broker can help you figure out what’s what and, in many cases, will be more successful in finding and negotiating the best rate for you.
While the interest rate is very important, it’s actually not the only factor you’ll need to consider in the overall cost of a mortgage. For example, different lenders have different rules about how much you can prepay and when, or what happens if you need to skip a payment.
Even more significant are mortgage breakage fees. Life happens, and a great number of people end up breaking their mortgage before the maturity date. If you have a variable rate mortgage, the breakage penalty might be a few thousand dollars. If you have certain varieties of fixed rate mortgage, the penalty could be in the tens of thousands of dollars. A good mortgage broker will make sure you understand all of these details before you sign.
Save grief… lots of it
When you’ve started the home-buying process, there’s nothing worse than needing a mortgage but running into trouble qualifying for one. The major Canadian banks typically have the least lenient lending policies and can be especially befuddled by people with non-standard situations, such as those who are self-employed or those who are financing an investment property.
This is another area where mortgage brokers can help. With access to smaller, more specialized lenders on top of the big banks, your broker has a lot more options to get you the financing you deserve. Sometimes people find they can start with a short-term mortgage from a specialized lender then switch to a mainstream bank once they are more established. Mortgage brokers can make this type of scenario possible.
Some food for thought
Purchasing a home (whether it’s your first or not) is likely one of the largest financial decisions of your life, and a mortgage is a huge financial commitment. That’s why it’s generally a mistake to “jump the gun” and accept the very first offer that comes your way. There is zero risk in exploring a wider range of options outside of your local bank, and that often involves the aid of a mortgage broker.
It’s important to keep in mind that mortgage brokers work on commission which is generally close to 1% of the value of your mortgage. So, for example, a $500,000 mortgage comes with a $5,000 commission cheque for the broker. This creates an incentive for them to get you the biggest mortgage they can.
Here at Arch we work several leading mortgages brokerages and brokers across the country who can help get you into your first (or second) home by working closely with you to understand the full scope of your needs. If you’re looking for a mortgage broker to work with, our team can help connect you to the right firm and professional that will put your best interests forward.