Not all mortgages are the same, and neither are all mortgage brokers.
Here are 4 things you should know about mortgages, and mortgage brokers before setting up your next mortgage.
1. What do mortgage brokers do?
The first time I was asked this question, my answer was simple: “Mortgage brokers help people get mortgages.”
Mortgage Brokers help existing and prospective homeowners get real estate secured loans. Whether for purchase, refinancing, or at the time of mortgage renewal, mortgage brokers are able to provide Canadian homeowners with financing options, while acting as intermediaries.
2. Who pays the mortgage broker?
Mortgage brokers are paid by the lender with whom the mortgage is placed, meaning that our services as Mortgage Brokers are completely free of charge to you, as homeowners. The commission paid to the broker is not in any way built into the homeowner’s mortgage, instead, the mortgage lender is able to pay the broker a commission because the broker has brought them a client, who will be paying interest on a mortgage.
3. What separates “Good Mortgage Brokers” from the rest?
Over time, as my understanding of what my role as a mortgage broker is in a homeowner’s real estate ownership life has grown, my answer to this question has evolved. My goal, as a Mortgage Broker is to get you the mortgage that will cost you the least grief and money overtime, not just “a mortgage.” Knowing what I know now, I believe that good mortgage brokers don’t just help people get mortgages; good mortgage brokers help people get the best mortgage they can possibly get.
4. What is “the best mortgage someone can possibly get?”
The best mortgage someone can get, is the mortgage that will cost them the least. Most people believe that the least costly mortgage is always the mortgage with the lowest interest rate.
Quick Money Saving Mortgage Tip:
Look beyond just mortgage interest rate, because the seemingly “unimportant” fine print terms and conditions of a mortgage could cost you thousands in penalties, fees, and even shockingly, interest.
While interest rate is the single largest factor in the cost of a mortgage, the mortgage with the lowest rate can sometimes end up being more costly overall. We’ve discussed the factors beyond rate that affect the overall cost of a mortgage before, but here is a quick summary:
- Payout Penalties – There are certain mortgages offered with very low rates, and high back end payout penalties. It is important to know what those penalties will add up to.
- Ability to Refinance – Many mortgages allow for homeowners to take out additional equity in their homes over time, but some do not. If you have a mortgage that does not allow for refinancing, you may find yourself paying a large payout penalty just to get access to your own equity
- Portability – If you were to sell your home before the end of the term, and purchase another, will you be able to move your mortgage to the new house and avoid the penalty?
- Compounding – Does your mortgage compound semi-annually, monthly or annually?
- Payment Options – Does your mortgage allow for you to make weekly, bi-weekly, monthly, or semi-monthly payments? Does it allow for you to make extra payments, and in what amount?
- Collateral Charge vs Standard Charge – Is the mortgage being registered against your home going to be a Standard Charge Mortgage, or a Collateral Charge Mortgage?
As mortgage brokers, our job is to not only understand the products available to our clients, but it is our duty to look beyond rate, and understand what our clients’ plans for the future are. When selecting a mortgage broker, it is important to test for this. Is the broker asking you questions about your plans for the future, and family, or are they merely filling out an application. Choosing a mortgage product (whether through a Bank or Mortgage Broker) that doesn’t properly fit your future could cost you thousands of dollars in interest, penalties, and fees.
You now know; what mortgage brokers do, how mortgage brokers are paid, what separates the good mortgage brokers from the rest, and what constitutes the ‘best mortgage’ for any one homeowner.