We mortgage professionals recently learned something very interesting. A survey of mortgage consumers revealed that people would rather get a root canal than a mortgage. Gasp! I can understand that the process can be overwhelming but considering that your home is likely the largest purchase you will ever make and will cost you hundreds of thousands of dollars perhaps we should reconsider this attitude?
Look at it this way, you shop around for the best price on a new TV which is likely under $1,000. You look at flyers and web sites and visit stores to see which one has the best picture and features so why not give your mortgage the same time?
Instead of saving hundreds of dollars you could save tens of thousands.
So if you have decided to stay with your current bank for your mortgage so that you have everything at one spot you should consider a few things before you sign.
1. Interest rate. I know this will shock you but banks are a business. They have investors and shareholders whom they are required to report to and these people like to see a profit at the end of each year. Profit is not a dirty word and considering that the strength of Canadian banks are the envy of the world this is a good thing. One of the ways they make money is through the interest they charge on the loans they make. Despite your relationship with the bank you may not automatically be offered the best rate. Do your research and make sure you are getting the best rate possible.
2. Portabilty – this is a feature which will allow you to take your mortgage with you to a new property in case you end up moving. Asking some questions can save you money and headaches later. Does your lender roll this into one new loan or will you end up with two parts to the new loan? The latter could mean different maturity dates meaning you are locked into that lender indefinitely unless you are willing to incur a penalty down the road.
3. Collateral mortgages. It is a common practise for banks to register a higher amount on the title of your property than what you actually owe. The benefit of this is that you can borrow additional funds without needing a lawyer down the road. The downside is that the bank is now able to tie all the borrowing you do with them into this charge. That’s right, your vehicle, trailer and credit cards are now potentially tied to the equity of your home. This could be a real problem when you sell the house thinking you have $100,000 to put down on the next and then find out instead that all of the other debts will be paid first and you now have no down payment. Keeping your mortgage with another lender protects you from this possibility.
4. Prepayment privileges. All banks offer you the ability to pre-pay your mortgage but did you know there are some differences? Will you have to wait for the anniversary date or can you start immediately? If you are making a lump sum payment is the minimum $100 or $1,000? These little differences can be frustrating.
5. Penalties. We all know that if you break your mortgage you will have to pay a penalty but guess what, that’s right, there is a big difference between the mortgage lenders. Each is able to decide how they will calculate this amount. All are now required to disclose this formula to you as a part of the mortgage process. What you should ask is this? What interest rate is used in the calculation? Are they using the discounted rate or the posted rate in their calculation? The difference can be huge and cost you a lot of your hard earned money.
So there you have it, the reasons you should ask some questions before you sign. Trust me, it’s way easier than a root canal.
Pam Pikkert is a mortgage broker with Dominion Lending Centres – Regional Mortgage Group in Red Deer.