Before you purchase a home, there are a couple things you need to figure out first!
One of the very first decisions you need to make is whether you want to work with a financial representative from a specific bank or rather a mortgage broker who is independent from a bank.
Next, you want to find a realtor that best understands your specific needs and wants.
From there, you and your realtor discuss certain pros and cons such as neighborhoods, type of building whether detached or attached, numerous bedrooms, resale potential, if upgrades are needed, local amenities, previous owners, the list goes on.
Once you get an idea of the homes that tick the most boxes for you, writing an offer to purchase comes quick!
But what about your mortgage?
Unlike the list of requirements when it comes to someone’s potential home, most people are only concerned about what the interest rate is when looking at their potential mortgage.
There is a lot more that goes into a mortgage such as understanding what differentiates one mortgage from another is very important for future borrowers to understand.
The following are 5 key elements borrowers need to be aware of before they sign and commit themselves to a lender and their mortgage product:
Every mortgage with every lender has some sort of privilege attached to it. Most of the time, it relates to pre-payment privileges. This is important because it allows you to increase your monthly payments, make lump sum payments, and change the frequency of your payments all while helping to pay down a portion of your mortgage and shave years off of unwanted interest.
Some lenders may only offer 10% pre-payment capabilities, while others offer 15% or 20%. With a $1,800 monthly payment that’s the difference between $180 against principle or $360. With an outstanding balance of $300,000, that’s the difference between a $30,000 lump sum payment against your principle or $60,000 — this is a massive chunk that will take years and thousands of dollars more off your mortgage. Some lenders offer the ability to skip a payment and double up on a payment.
Nobody wants to pay a penalty for breaking their mortgage early. That is why it is crucial for you to understand what your penalty will be IF you had to pay one. Some lenders use an IRD (Interest Rate Differential) penalty that takes into consideration term, outstanding balance, current rates, previous rates and blends it all together into a formula. Other lenders use only three months interest and as you can probably guess, the IRD penalty is the more expensive one 99% of the time.
Big banks will almost always have a higher IRD penalty than monoline lenders who only operate within the mortgage space.
A $12,000 IRD penalty with a big bank can be only $4,000 with a monoline for the same sized mortgage!
The lower the rate, the lower the payment! What it really comes down to is picking the right term and choosing between a fixed or variable rate. This is something a mortgage broker can be very helpful in explaining as it relates to your specific situation.
This relates to a borrower’s ability to move their mortgage from one property to another, even across provincial boarders. Some lenders like big banks across Canada allow for this to happen however, credit unions cannot guarantee this can happen for you.
If your job requires relocating and constant moving or travelling, this is a factor that you should pay attention to!
An assumable mortgage allows the person buying your home to take it over completely. This allows you to avoid re-payment penalties and increased costs if downsizing. Not a feature commonly used but extremely beneficial when it is available.
Connect with us today to see which of these 5 topics most affects you and what lender offers the best solutions!