29 Oct

THINKING ABOUT A NO SUBJECT TO FINANCING OFFER? 3 POINTS YOU NEED TO CONSIDER

General

Posted by: Mike Hattim

In hot real estate markets, it’s common for both buyers and agents to consider having no subjects to financing when making a purchase offer.

It’s important to realize, however, that no professional is in a position to legally advise you to enter into a real estate transaction with no subjects, especially no subject to financing.

This is a personal choice that you must carefully consider. Understanding the risks involved will help you make an informed decision.

Keep these three points in mind when making the choice with which you will be most comfortable:

1. Regardless of whether you have secured a rate hold / pre-approval, the lender has the right at any time to decline the property. This can occur for a number of reasons including but not limited to: value, condition, wiring, tanks, strata documents, zoning, work completed without permits, full fix completed without proper documentation, rental components or remaining economic life. Lenders only review property details once an accepted offer is in place – not when you’re simply considering making an offer or during the time you’re going back and forth as part of the negotiating process. They then review the contract, property disclosure statement (PDS) and anything else accordingly.

2. Even if a lender has approved you based on credit and income, if your scenario has since changed and they request further documentation (eg, you haven’t received enough overtime, you spent more on your credit cards, your employment/credit has changed or there was something you may have forgotten to disclose), they have the right to alter or cancel the approval. All lenders only do a full review of your credit and income once you have an accepted offer in place. They only view an application for rate hold or pre-approval purposes and verify once an accepted offer is in place with the right reserved to disregard the pre-approval, or even an approval at any time for the above reasons while doing their due diligence, right up until closing.

3. Who is in the best position to go into a purchase with no subjects? Borrowers who:

– Are overqualified for the purchase

– Can afford a higher payment if the original plan doesn’t work out with any of the above points

– Have their own cash (not a gift pending qualifications) far in excess of what was intended

– Have income that far surpasses what is required

As Accredited Mortgage Professionals, it’s our responsibility / fiduciary duty to be honest and transparent, and give you the power of choice with clarity on all the considerations to anticipate scenarios that may arise, so you can make the best choices for your family. It would be much easier to be a yes person and cross our fingers that none of this comes up, but it’s not how a professional should guide you, as you come to trust in our clarity, knowledge and experience. When you have this expertise coupled with the right real estate agent, they too will ensure you take the emotion out of the purchase, and protect you accordingly with subjects you’re comfortable with for your personal circumstances so your choice is calculated, clear and comfortable long term.

28 Oct

KNOW WHAT YOU CAN AFFORD BEFORE YOU BUY

General

Posted by: Mike Hattim

Before home buyers go shopping for a home, it is important to know what you can afford before you buy. It is becoming more common for home buyers to make an offer, get declined for the mortgage and the deal collapses. This is stressful for everyone involved, including the buyer, the seller and the realtor. Make it easier on yourself by understanding what you can afford and all your options first.

Always start by asking yourself “How much do I think I can reasonably afford to pay for my mortgage, taxes, strata and heating costs per month?” Then we can use that number and work backwards to see what you can afford within your budget. This approach can help to ensure that your monthly housing costs meet your means.

As a mortgage professional, we consider three things for mortgage approval, your credit history and score, your ability to make the mortgage payments (gross monthly income) and your monthly debt obligations (loans, credit cards, other mortgage payments, child support,etc). I also suggest buyers have a monthly amount in mind they feel comfortable paying for their mortgage, property taxes and strata fees. For example if your budget allows for $2,000 per month after we allow for $200 for property taxes each month and $300 for strata fees each month we have $1,500 per month left to cover the mortgage payment.

Even if you think you can afford that payment each month, the lender uses two simple calculations to determine the maximum mortgage and payment you can actually qualify for. The first calculation, your Gross Debt Service Ratio (GDS), requires your monthly housing costs (mortgage principal and interest, property taxes, and half of the monthly condo fee if you are purchasing a condominium) should not be more than 32% -39% of your gross monthly income. The second calculation requires your entire monthly debt load (including housing costs and other debts such as car loans and credit card payments) not exceed 40%-44% of your gross monthly income. This figure is your Total Debt Service ratio,(TDS). The range of debt servicing will depend on your credit score, so it is wise to estimate on the lower numbers to start. To qualify for $2,000 per month in payments you would need to earn at least $6200 per month gross (before taxes), which represents 32% of your income for the GDS. Any additional debt for loans and credit cards should then not exceed the 42% TDS limit.

Once you determine your fit within these limits, you can get some idea of your monthly payment. I can then determine the maximum mortgage added to your down payment to set the maximum purchase price and you will know what you can afford before you buy to avoid any last minute pitfalls in buying your home.

The mortgage pre-qualification process is as simple as completing an application online via our Dominion Lending Centres website and then a conversation to review – approval can happen 0n the same day and you can be on your way.

 
27 Oct

THIS VS THAT VOLUME 2

General

Posted by: Mike Hattim

This is a sequel to This vs That, which I published last week on the Dominion Lending Centres website.

A good idea always has an encore presentation. Heck, Rambo was so good they made another four movies. Here are a handful of additional terms used in the real estate and mortgage industry and hopefully the explanation will provide some clarity.

MORTGAGOR VS MORTGAGEE

The mortgagor is the borrower and the mortgagee is the lender.

PORTABLE VS ASSUMABLE MORTGAGE

The act of porting a mortgage allows the borrower to transfer the terms, conditions and interest rate of the current mortgage to the home the borrower would like to purchase. There is sometimes a blend and extend that occurs as well. An assumable mortgage allows the purchaser to assume or take over the responsibilities and liabilities under the mortgage from the vendor.

DEPOSIT VS DOWN PAYMENT

The deposit is a sum of money negotiated in a real estate purchase/sale transaction by the seller and buyer upon removing subjects. It’s a sign of following through with the transaction in good faith. The deposit is then held “in-trust” with the Realtor and transferred to the lawyer for completion. The down payment is a sum of money required by the lender to seek financing to purchase the subject property. The percentage of down payment may vary from scenario to scenario as lender policies can shift with the economy. The deposit is a portion of the down payment. For example, if the purchase price of the home is $450,000 and the buyer is putting $45,000 (10%) down to secure 90% financing, the deposit is $15,000 (held in “in-trust”) upon removing subjects, then only $30,000 is required to be paid to the lawyer at completion.

CLOSED VS OPEN TERM

A closed mortgage that is terminated prior to the maturity date will be levied a penalty, either 3 months interest or an Interest Rate Differential calculation. An open mortgage, if terminated prior to maturity, will not be charge a penalty at all. One could have a Fixed Closed or Fixed Open mortgage and the same applies to variable – one could have either an open or closed term.

TERM VS AMORTIZATION (LIFE OF THE MORTGAGE)

The term of the mortgage represents the duration of the contractual obligation to the lender. Terms range from six months to five year with some lenders offering seven and 10 year terms. Amortization or the life of the mortgage is the process of repaying a loan by way of periodic payments. These payment amounts are a combination of principal and interest. The most common amortization schedule that borrowers follow is 25 years. The Latin word admortire means “to kill.” Most borrowers want to kill their mortgage as fast as possible.

CHATTEL VS FIXTURE VS REAL PROPERTY

Chattels are articles of personal property like TVs, cars, computers, bikes etc. A fixture is a chattel that has become attached to real property over time. There is a 2 part test to consider the intended and purpose of affixation. Real property generally consists of land and whatever is erected, growing upon or affixed to the land.

FREEHOLD VS LEASEHOLD PROPERTY

The owner of the freehold interest has full use and control of the land and the buildings on it, subject to any rights of the Crown, local land-use bylaws, and any other restrictions in place at the time of purchase. In some cases, you might purchase the right to use a residential property for a long, but limited, period of time – this is called a leasehold interest. Leasehold interests are frequently set for periods of 99 years.

Will there be a This Vs That Volume 3 – stay tuned to find out!

 
24 Oct

MORTGAGES ARE BORING (YAWN), BUT YOU STILL NEED TO DEAL WITH THEM EVERY YEAR!

General

Posted by: Mike Hattim

I have heard from many people that mortgages are boring. I completely agree! If I was building a rocket or a doctor saving a life, that would be exciting. But I don’t build rockets and I’m not a doctor. I just set up mortgages. They’re uneventful, and require a large amount of money you have to pay back.

Like most people, you’re probably falling asleep because it’s a topic that’s so uninteresting to so many people. Now most people love to talk real estate. That’s different. It’s rare for me to be at a party or family gathering where we’re not talking real estate. Real estate (especially Vancouver real estate) is and will continue to be a hot topic. As soon as the word “mortgage” comes up, get that full glass of wine, grab the pillows and make room on the couch cause it’s a snoozefest!

Now for being such a boring topic, it can be one of the most impactful topics in your life. It should be! It’s probably going to be the biggest debt you’re ever going to have. Why am I telling you something that you already know? Well it’s because I, as a Mortgage Broker, want you to pay off your mortgage as fast as you can. I’m not a bank so I don’t want you to pay as much interest as possible. I don’t want you to unknowingly take more money out of your pocket, your spouse’s wallet, or your child’s wallet and give it to the bank.

I want you to pay down your mortgage faster. I want you to save money. I have the knowledge and tools to do that. This is where the exciting part comes in. What if you paid your mortgage off five years sooner or ten years sooner? Think about all of the stress of having a mortgage just vanish. You can buy more things, go on more trips, etc. Now that’s exciting!

This is important as, just like in any financial plan, you should talk to your Mortgage Broker at least every year to see if your mortgage is still on the right path or if we need to make tweaks to it. The information that we provide is completely unbiased as we’re not tied in to any one bank or lender. Life changes. Families grow and families shrink. There are good times and bad times. We want to minimize those financial impacts and we can.

So no matter what, have a DLC Mortgage Broker go over the “boring” part of your finances annually. You may prefer to watch the grass grow but just an hour a year (did I mention that this service is free?) with your DLC Mortgage Broker can save you thousands of dollars and help get rid of that mortgage faster.

24 Oct

ARE YOUR CLIENTS REALLY, TRULY PRE-APPROVED FOR A MORTGAGE?

General

Posted by: Mike Hattim

Beware of the term PRE-APPROVAL!

Here are some facts:

  • Pre-approvals mean something different to every mortgage professional and lending institution
  • For mortgage approvals both the applicants AND the property they are buying need to be adjudicated and approved before funds are advanced…detailed borrower information and documents are typically required for a full pre-approval, however property info is seldom available. For this reason a full blown adjudicated pre-approval is very difficult to obtain
  • Many lending institutions will not adjudicate pre-approvals, and many others charge rate premiums to do so
  • Applicants’ assets, liabilities, and income need to be verified in writing before a mortgage can be approved…many mortgage agents don’t even pull credit or verify employment and down payment before issuing a pre-approval
  • For a high ratio mortgage (less than 20% down), both the lending institution AND the default insurer must approve the lender and the property….default insurers will only adjudicate live applications
  • Rate holds and pre-approvals are different everywhere….rate holds seldom include any form of verification or viewed documents
  • In a rising interest rate environment, a previous pre-approval may no longer be acceptable due to excessive debt service ratios based on the current higher rate
  • For very long closings over 90-120 days, assets, liabilities, and income may need to be fully verified again prior to closing
  • Approved mortgage amount is always based on the lesser of the purchase price OR the appraised value…any shortfall from an appraisal needs to be made up by client

We here are Dominion Lending Centres can help sort through this mine field, and provide you with meaningful feedback and information for your mortgage needs.

21 Oct

WHO IS THE BANK OF CANADA?

General

Posted by: Mike Hattim

With the Bank of Canada announcement today, have you ever wondered who the Bank of Canada is and what is its role in our economy?

The Bank of Canada is the country’s central bank. Its role, as defined in the original Bank of Canada Act of 1934, is “to promote the economic and financial welfare of Canada. “

The Bank was founded in 1934 as a privately owned corporation. In 1938, the Bank became a Crown corporation belonging to the federal government. Since that time, the Minister of Finance has held the entire share capital issued by the Bank.

The Bank of Canada is not a department of the government but rather a special type of Crown Corporation. The Bank has considerable autonomy to carry out its responsibilities.

The Bank of Canada is responsible for:

  • Monetary Policy – the goal of monetary policy is to contribute to solid economic performance and raising living standards for Canadians by keeping inflation low, stable, and predictable.
  • Bank Notes – the Bank of Canada designs and issues bank notes that Canadians can use with the highest confidence.
  • Financial System – the Bank of Canada actively promotes safe, sound, and efficient financial systems, both within Canada and internationally, and conducts transactions in financial markets in support of these objectives.
  • Funds Management – the Bank of Canada provides high-quality, effective, and efficient funds-management and central banking services for the federal government, the Bank, and other clients.

The Bank of Canada was created to be the sole issuer of bank notes and to facilitate management of the country’s financial system.

By having an independent monetary institution it allows for the separation of the power to spend money from the power to create money.

Separating the central bank from the political process enables it to adopt the medium and long-term perspectives essential to conducting effective monetary policy.

The Bank carries out monetary policy by influencing short-term interest rates. It does this by raising and lowering the target for the overnight rate.

The overnight rate is the interest rate at which major financial institutions borrow and lend one-day (or “overnight”) funds among themselves; the Bank sets a target level for that rate. This target for the overnight rate is often referred to as the Bank’s key interest rate or key policy rate.

Changes in the target for the overnight rate influence other interest rates, such as those for consumer loans and mortgages. They can also affect the exchange rate of the Canadian dollar.

In November 2000, the Bank introduced a system of eight fixed dates each year on which it announces whether or not it will change the key policy rate.

The Bank of Canada does not set the prime rate; financial institutions set their own prime rates based on the cost of short-term funds, and on competitive pressures among them. The Bank of Canada influences the cost of short-term funds by setting the target for the overnight rate.

The Bank Rate is the rate at which the Bank of Canada lends funds to financial institutions. It is set at 0.25 per cent above the target for the overnight rate, which is the Bank’s key policy rate. As seen in the past, larger banks don’t always pass the discount along to their clients when the Bank of Canada lowers its bank rate.

All the information gathered here for you was gathered from http://www.bankofcanada.ca/about/educational -resources/fgg/

I encourage you to go to the website or click on the highlighted links to expand your knowledge of our Canadian banking system.

20 Oct

THIS VS THAT

General

Posted by: Mike Hattim

Versus (vs) – as compared to or as one of two choices; in contrast with.

At least once a day I get asked, what’s the difference between ‘this’ and ‘that’? With this in mind I put together some content that will hopefully provide some clarity in regards to  a few of the more commonly asked questions.

LAWYER VS NOTARY

Most real estate deals are fairly straightforward, both a lawyer and notary can and will prepare the documents for you. If you are buying a home, they will: conduct a title search, obtain tax information and any additional information to prepare the Statement of Adjustments. Then they will prepare closing documents, including a title transfer, mortgage, property transfer tax forms and forward them to the seller’s lawyer/notary for execution. After you sign your papers, the lawyer or notary will register the transfer, mortgage documents and transfer funds to the seller’s lawyer/notary. Sometimes there are more complicated transactions, at this point one would need to decide LAWYER or NOTARY?

If something were to go wrong with your transaction, a notary cannot represent you in court of law, unlike a lawyer. Nor can the notaries represent and guide you through a dispute process. Notary also cannot advise you on legal matters, for example, if you go to a notary to convey a real estate file and you were to ask a legal question, such as, “I think my neighbour’s fence is on my land, what should I do?” the notary cannot give you advice on what your recourse is.

With regard to the fee structure, there isn’t much of a different these days. If you are unsure of which one to use, it’s always a good idea to phone a notary and a lawyer to describe the services you need and then decide from there.

GUARANTOR VS CO-SIGNER

A co-signer is a co-owner that is registered on the title and is equally accountable for payments, while a guarantor personally guarantees the payments will be made if the original applicant defaults. However, the guarantor has no claim to the property as they’re not registered on the title. Typically a co-signer is added to a mortgage application to increase the income, which will assist with reducing the debt service ratios. Whereas a guarantor will be utilized if the applicant(s) has received past credit blemishes and needs to strengthen the file.

TITLE INSURANCE VS SURVEY CERTIFICATE

These two are slightly different but work in conjunction with one another. Title insurance is an assurance as to the state of title of any given property. In practical terms, it protects lenders and purchasers against loss or damage suffered due to survey problems, defects in title and other matters relating to title fraud. A survey certificate will typically show the lot boundaries, improvement locations and often the locations of any rights of ways or easements registered against the property. This will also assist a purchaser in determining whether any of the improvements on the property encroach on a neighbouring property or if there are improvements from an adjacent property that encroach on the subject property.

JOINT TENANT VS TENANT IN COMMON

When a property is held in joint tenancy, the situation is what I refer to as “the last man standing.” When one joint tenant dies, the entire property belongs to the remaining, surviving joint tenant(s). Only that last person can use his or her Will to give the property to someone else. Tenants in common is a different story. In this arrangement, each person owns a percentage that is registered in their name. They can then leave their share to someone in their Will or sell it (never mind the logistical problems of trying to sell one third of a house).

SWITCH/TRANSFER VS RE-FINANCE

To switch/transfer one’s mortgage, it involves moving your current mortgage from one lender to another without changing anything except for the term and interest rate, amortization remains the same. If switching lenders within the term, there will likely be a penalty for breaking the mortgage, though often the savings in moving to another lender with a better rate will substantially outweigh the penalty. Doing a switch at the end of your mortgage term will allow you to completely avoid the penalty.

In re-financing a mortgage, the borrower is also likely taking advantage of lower rates whilst at the same time accessing equity. The reasons for this could range from; debt consolidation, renovation, purchasing a vacation home, post-secondary education, investment planning and so on… Two other major differences are when one wants to re-finance, the maximum loan is 80% of the market value whereas a switch/transfer lender can surpass the 80% mark as the mortgage amount does not change. And finally, with re-financing the mortgage will need to be disbursed and re-registered with the lender (or new lender) therefore a fee will be charged. With a switch/transfer, there is a possibility that there will be no extra fees charged.

ACCELERATED BI-WEEKLY VS BI-WEEKLY PAYMENT FREQUENCY

Nobody wants a mortgage and everyone that has one wants to pay it off faster, or at least they should. Payments are income streams that lenders blend a principal and interest amount into one payment with the goal to pay more principal than interest. As one gets further through the term the inevitable shift happens from paying more interest to paying more principal (P&I).

The bi-weekly payment is basically 12 monthly payments spread out over 26 installments or every other week. For example, if your monthly payment is $2,000 your total yearly mortgage payment will be $24,000. The bi-weekly or 26 payment equivalent is $923.08 ($24,000.08), the net amount remaining unchanged. To speed up the inevitable P&I shift, one might want to opt for accelerated bi-weekly payment frequency. This is the key to shortening or reducing the life of the mortgage (amortization). The accelerated repayment plan takes a 24 payment cycle and adds on 2 more payments of the same size, for a total of 26 payments or 1 extra payment every 12 months to total 13 payments. So you are paying slightly more each year, thus reducing the life of the mortgage. Using the same example from above, if your monthly payment was $2,000, adding two extra payments to the grand total, one’s yearly mortgage payment would be $28,000, with each payment now being $1,076.92.

Obviously if you have questions, we here at Dominion Lending Centres would love to answer them for you.

 
16 Oct

HOW TO AVOID THE 7 BIGGEST MISTAKES REFINANCE SHOPPERS MAKE

General

Posted by: Mike Hattim

Whenever interest rates drop or housing values jump, a refinancing frenzy follows. Whether you are looking to trim your mortgage payments, eliminate credit card debt or renovate, experts say you should fully understand all the options available to you before deciding to refinance. Here are some common pitfalls that consumers can avoid when refinancing:

1. Check interest rates to see if your new rate will pay off the penalty for leaving your present mortgage. It is best to decrease your interest rate by at least .75% to 1%. This would save you $100.00 a month on a $150,000 mortgage.

2. Know what your costs are – Check with your bank to find out what the penalty would be for an early payout.. It may be 3 month’s interest or more.. Don’t tell them you are moving your mortgage or they will pass you on to a high pressure salesperson who will try to talk you into coming into the branch to discuss the issue. It’s easier to say you are thinking about paying out your mortgage early.

3. Be sure to compare apples to apples- Make certain the rate you were quoted over the telephone was for a similar product. Comparing 3 year rates at one lender to 5 year rates at another is like comparing apples to oranges.

4. Overvaluing your Home – pride of ownership sometimes overshadows our common sense. You may expect the value of renovations to be equal to the cost of labour and materials. While return on investment for new carpeting or new paint jobs is close to 100%, it can be as low as 15% for a granite entranceway. Some people use their tax evaluations which may be too high or too low. Consider checking with your realtor or someone who recently sold their home on your street.

5. Not considering future plans – getting locked into a 10 year fixed rate when your kids will be leaving for college in 3-5 years may not be a smart move. If you are planning on buying a vacation home or an investment property why not plan for it now? You might be able to get it sooner than you expect.

6 Don’t let low interest rates or catchy slogans stop you from shopping around. Often the lower rates come with unattractive conditions: they may not be portable to a new home, the interest rate may only be available in one province, or you may be tied to the mortgage unless you have a bonafide sale of the home.

7 Finally don’t go to your present bank first. If you don’t know the rates you won’t get the best rate. The major reason people go to their present lender is convenience. There is comfort in “being known” and a belief that they should receive special treatment. The reality is that all lenders are under pressure trying to process the unprecedented volume of refinances. They have to set priorities. And you would be a low one as they already have your loan. They may lower your present rate from 3.99% to 3.79% to pacify you but if you shopped around you might find that other lenders are offering 3.19% at this time.

In conclusion, be a good consumer. Consult with your Dominion Lending Centres mortgage professional who can review the best options with you. We can help you make an informed decision on your finances.

 
15 Oct

MORTGAGE VS HELOC – DO YOU KNOW THE DIFFERENCE?

General

Posted by: Mike Hattim

Today, with the Internet, we all have an abundance of information literally at our fingertips. Despite the information available many homeowners have limited knowledge about the mortgage process and products. Their lack of knowledge can turn out to be costly. Homeowners should know the difference between a conventional mortgage and a Home Equity Line Of Credit (HELOC).

A conventional mortgage is a registered charge against your home. There is a set term – 6 months to 10 years and an interest rate can be either a fixed or variable rate. Payments include principal and interest. Many homeowners choose a fixed rate as it is easier to set budgets knowing the interest rate won’t change during the term chosen. Variable interest rates will change as Prime changes. With a solid strategy in place, choosing an interest rate will be simple. If you have less than a 20% down payment (equity) the maximum amortization is 25 years. More than 20% down and a 30 year amortization is available. You can purchase a home with as little as 5% down (maximum purchase price $999,999).

A HELOC is a secured line of credit also registered as a charge against your home.  This charge can be in first position but generally is added after the fact behind a conventional mortgage. Some lenders will not permit another charge on title. Like any line of credit, a HELOC is fully open and you can borrow and re-borrow. The interest rate is tied to Bank Prime and may fluctuate. Government regulations stipulate that a HELOC cannot exceed 65% of the value of your home, unless in second position, in which case you can borrow to 80% of the value and qualifying must be done using the 5 year posted rate (4.64%) with a 25 year amortization. Payments can be as low as interest only but that is truly the never-never plan for repayment. Any spikes in interest rates can throw off the most dedicated budgeters!

If used responsibly and with a sound strategy, a HELOC can have many advantages. Purchasing investments with a HELOC creates a tax deduction for interest paid. Renovating your home with a HELOC allows you to draw from it when you need it, only paying interest on the money used. Your children’s education, buying a boat or the down payment for a recreation property can all be facilitated with a HELOC. A HELOC can be a great tool for investments, renovations and short term financing needs. Anything longer term, however, is often cheaper to choose a conventional mortgage with a variable rate. The difference in the lower interest rate outweighs the flexibility of the HELOC.

Most people when buying a home take a conventional mortgage with a fixed term and rate. The astute homeowner understands the power of a conventional mortgage combined with a HELOC. Understanding your needs together with a strong financial strategy can turn your largest debt into your greatest asset!

14 Oct

DO YOU HAVE A CHOCOLATE COVERED MORTGAGE?

General

Posted by: Mike Hattim

I have something shocking to tell you. Ready? Canadian banks are a business like any other. Gasp and shock! This is nothing less than the truth. They are mandated to produce profits and provide their shareholders with a dividend at the end of the year. This is accomplished by charging us service fees and interest on loans and in a wide variety of other ways. Given that the Canadian banking system is one of the strongest in the world, which in turn benefits our economy as a whole, I certainly do not begrudge them their right to a profit. So why am I drawing attention to this you may ask, well I will tell you.

As a mortgage professional I am often told that people would rather stay with their bank because their bank has been so good to them or because the family has been with that particular bank for generations and I am genuinely baffled by the prevalence of this attitude. Of course your bank is good to you! You are a good person who pays your bills on time, has an account, or several, which generate a monthly service fee, and when you have borrowing needs you go to them and they lend you the funds at a reasonable rate. When it comes to a mortgage though, the loyalty you feel to your bank and the assumption that they will take care of your best interests can come with a high cost if you don’t understand the fine print. Let’s look at some of the things you need to be aware of, shall we?

1. Best Rates – I see this so often. Clients come in with their bank’s best offer, which is considerably higher than the going market rate, only to be told the bank is able to match after they spend a pile of time rate shopping. Your mortgage rate determines your payment and affects your family’s budget. Make sure you get the best rate you can.

2. Prepayment Penalties – In Canada there is no set standard as to how the banks and other mortgage providers have to calculate the penalty if you break your mortgage. A mortgage is a contract after all. The banks have a right to expect a certain rate of return on the loan they have made to you but life happens and a major event can cause you to need to break your mortgage, so make sure your penalty will be calculated reasonably. I have seen this amount vary from $4,200 to over $10,000 given the policy of the lender involved on the exact same mortgage amount and time remaining in the term.

Lenders are required to disclose the calculation to you but you need to be aware that some banks will calculate your penalty in a way that is most lucrative to them.

3. Collateral Mortgages – Many of the banks now register your mortgage differently. Say your mortgage is $250,000 but your home is worth $300,000. In this instance the bank would register a charge on the title of the home for the higher amount. The reason is so that if down the road you wish to get a home equity line of credit, you do not have to pay the legal fees again to do so. That can be a useful tool. The flip side is that this type of a mortgage is trickier to switch to a new lender at renewal. You may not be able to take advantage of today’s’ crazy low rates in a fee free switch if you have this type of a mortgage.

Placing your mortgage with your own bank does not all of a sudden turn it into a chocolate covered treat or make it any more prestigious. It can actually be very costly in the long run to choose one lender over another without educating yourself on their policies. Make sure you are choosing the best overall mortgage so that you are ready for anything life throws at you.