Buying a home is one of the biggest investments you'll make. Just as you wouldn't make a commitment of that size without asking the right questions and sneaking a peek under the rug, it's important to put equal effort into finding the right mortgage.
Generally, there are two ways to obtain mortgage financing in Canada — either indirectly through a mortgage broker, or directly through a financial institution or mortgage lender. The mortgage market is a highly competitive market and the players are standing in line to win your business.
So who are the players?
A mortgage broker does the shopping for you — presenting your information to lenders to find a fit. He or she has access to numerous lenders and can provide you information on various services and loan types, and will shop around for attractive rates and terms for your mortgage. The use of mortgage brokers is very common in the United States and they are growing in popularity in Canada. According to research by the Canadian Association of Accredited Mortgage Professionals (CAAMP), mortgage brokers closed approximately one quarter of all mortgage deals in Canada in 2010.
A mortgage lender in Canada is most likely to be a major bank, trust company, credit union or other finance company. Whether generated by a broker or a bank, chartered banks finance more mortgages than all other lending institutions combined. Most bank advisers or bank mobile specialists strive to provide a holistic solution that is best for you, using their suite of financial products and services. They might, for example, take into consideration all outstanding debt, such as credit cards, loans, or lines of credit as part of an overall solution for your particular needs. They could help improve cash flow and minimize your borrowing costs over the long term. Banks are aware of the highly competitive landscape and offer competitive rates.
So will it be a broker or a bank?
While there are advantages to both, my advice, no matter which route you choose, would be to have the right questions prepared for your mortgage professional. Interest rates are just the beginning. What might the new mortgage rules mean in your situation? Here are some important areas to consider:
Term: Ask your broker or lender to break down the costs of different terms. Do you need a fixed term to better sleep at night, or would a variable term work for you? If you expect to have extra money to pay down your mortgage, perhaps you should consider an open term versus a closed term.
Amortization: Have the bank or broker calculate the difference amortization schedules will make — will you spread the payments out over 25 or 30 years? Or can you do 10?
Prepayment allowance: How much and how often will you be able to pre-pay every year before being charged a penalty?
Frequency of payments: Which payment frequency is most suitable for you — weekly, bi-weekly, rapid bi-weekly? Will the lender allow you to make accelerated payments?
Portability: If you move, can you take your mortgage with you?
Assumability: If you sell, can the buyer, subject to a credit approval, assume your mortgage and rate?
Point of contact: Who can you call if you have a question or a problem? If you use a broker to arrange mortgage financing, will he or she have any involvement once the financing is in place? Are call centres and branches available for inquiries?
Many Canadians are getting a second opinion when it comes to mortgage financing. The best advice? Do your homework, shop around and be ready to pepper your mortgage professional with questions. Consider your mortgage as carefully as you will the purchase of your dream home.