Is Your Banker Really on Your Side? - Mortgage Blog October 2014
"Bank's BEST rate". I hear this all the time and while it may be true at the time that you get your mortgage from your neighbourhood branch, it is truly the case? From someone who has now (gulp) been in the Mortgage business in one way or another for 20 years it rarely is. When you consider that close to 70% of mortgages in Canada are in 5 year closed fixed rate terms AND that the banks carrying a substantial share of the mortgage market it truly begs the question. What makes a great deal? Consider the following points when you as Mr & Mrs Consumer are chasing the BEST rates.
* Can I PORT my Mortgage? If I move during the term, can I avoid paying a penalty by PORTING my mortgage which is the means of taking the existing mortgage with you when you sell the house. Usually easily done be paying a small (in the grand scheme of things) $300-400 administration fee. If your mortgage doesn't inlcude this feature or the mortgage consultant cannot explain how this feature works then, DON'T SIGN
* Is my Mortgage ASSUMABLE? Again this is a key feature of any mortgage offering. If you move during the term and as above want to avoid a penalty, can the new buyer ASSUME my mortgage which in lamens terms means he or she (or he and she) takes over your mortgage from you saving YOU the seller from paying a penalty to break the term.
* How is my Mortgage Penalty REALLY Calculated? If your Mortgage Consultant cannot (or will not, yikes) explain the pre-payment penalty calculation so you can actually understand and be comfortable with it, DON'T SIGN. Seriously, don't do it as it will not end well and you will be paying through the nose! Now like any good Mortgage Consultant, there will be times when we will have to place your mortgage with a Big 5 Bank. 99% of the time it will be because we are looking for a particular product or feature that only a Bank can offer. Why not a Big 5 Bank, you ask? Bank Pre-payment Penalties on a Closed Fixed Rate Mortgage are typically obscene. Remember your buddy or your cousin or your friend or your co-worker told you how they have been fleeced on closing day at the lawyer's office when selling their existing home? It wasn't the lawyers fault (they only deliver the bad news), it wasn't even the bankers fault (though they all know the real deal and the devil is in the details) it is ultimately a "buyer beware" piece of your Mortgage Contract that no one took the time to explain fully BEFORE you took the mortgage, but you NEED to read the fine print. We have lenders who still charge penalties on the same scenario at better than the "BEST Rate" but the penalty caculation will be 2/3rd LESS (not a typo) than what the neighbourhood bank branch will charge. 2/3rds LESS!
* Bonafide Sale Clause. If you see this mentioned ANYWHERE in the Mortgage Contract, DON'T SIGN. This clause means you actually HAVE to sell your home in order to break the mortgage and leave the Bank. Even after you sell, they are still charging you penalty! I cannot save you from this clause and it is NEVER worth the slightly better rate. Period.
* Can I make extra payments? Of course you can but how much and how often is key. Most mortgage contracts are setup so you could payoff the entire balance in about 6 years IF (and that is a BIG if) you have the means and cash to do so. If you are offered a contract with limited pre-payment privileges (i.e. Less than 10% per year of the original balance) then DON'T SIGN. There are much better options available to you. If the Mortgage Consultant cannot (or does not) explain in detail what you can pay extra, then DON'T SIGN!.
Now I have littered DON'T SIGN throughout this entry, not as means to scare you off (really I do want your business) rather so you are informed. Many people read their car loan documentation more often than they read their Mortgage Commitment. If your Mortgage Consultant doesn't go into detail as to what exactly you are signing then I wouldn't sign........Use an Experienced Mortgage Broker (with about 20 years in the business maybe and you will have nothing to worry about. :)