Mortgage Financing Explained

Lisa Manwaring • Dec 20, 2023

If you’re like most Canadians, chances are you don’t have enough money in the bank to buy a property outright. So, you need a mortgage. When you’re ready, it would be a pleasure to help you assess and secure the best mortgage available. But until then, here’s some information on what to consider when selecting the best mortgage to lower your overall cost of borrowing.

When getting a mortgage, the property you own is held as collateral and interest is charged on the money you’ve borrowed. Your mortgage will be paid back over a defined period of time, usually 25 years; this is called amortization. Your amortization is then broken into terms that outline the interest cost varying in length from 6 months to 10 years. From there, each mortgage will have a list of features that outline the terms of the mortgage.

When assessing the suitability of a mortgage, your number one goal should be to keep your cost of borrowing as low as possible. And contrary to conventional wisdom, this doesn’t always mean choosing the mortgage with the lowest rate. It means thinking through your financial and life situation and choosing the mortgage that best suits your needs.

Choosing a mortgage with a low rate is a part of lowering your borrowing costs, but it’s certainly not the only factor. There are many other factors to consider; here are a few of them:

How long do you anticipate living in the property? This will help you decide on an appropriate term.
Do you plan on moving for work, or do you need the flexibility to move in the future? This could help you decide if portability is important to you.
What does the prepayment penalty look like if you have to break your term? This is probably the biggest factor in lowering your overall cost of borrowing.
How is the lender’s interest rate differential calculated, what figures do they use? This is very tough to figure out on your own. Get help.
What are the prepayment privileges? If you’d like to pay down your mortgage faster.
How is the mortgage registered on the title? This could impact your ability to switch to another lender upon renewal without incurring new legal costs, or it could mean increased flexibility down the line.
Should you consider a fixed rate, variable rate, HELOC, or a reverse mortgage? There are many different types of mortgages; each has its own pros and cons.
What is the size of your downpayment? Coming up with more money down might lower (or eliminate) mortgage insurance premiums, saving you thousands of dollars.

So again, while the interest rate is important, it’s certainly not the only consideration when assessing the suitability of a mortgage. Obviously, the conversation is so much more than just the lowest rate. The best advice is to work with an independent mortgage professional who has your best interest in mind and knows exactly how to keep your cost of borrowing as low as possible.

You will often find that mortgages with the rock bottom, lowest rates, can have potential hidden costs built in to the mortgage terms that will cost you a lot of money down the road. Sure, a rate that is 0.10% lower could save you a few dollars a month in payments, but if the mortgage is restrictive, breaking the mortgage halfway through the term could cost you thousands or tens of thousands of dollars. Which obviously negates any interest saved in going with a lower rate.

It would be a pleasure to walk you through the fine print of mortgage financing to ensure you can secure the best mortgage with the lowest overall cost of borrowing, given your financial and life situation. Please connect anytime!

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LISA MANWARING

MORTGAGE EXPERT

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What Banks Won’t Tell You About Mortgage Financing

By Lisa Manwaring • 13 Nov, 2024

If you’re looking to buy a property or have a mortgage up for renewal, and you’re thinking about connecting with your bank directly, save yourself a lot of money and regret by reading this article first. Here are four things that your bank won’t tell you, accompanied by four reasons that explain why working with an independent mortgage professional is in your best interest. Banks have Limited Access to Mortgage Products. Now, while this one may seem pretty straightforward, if you’re dealing with a single institution, they can only offer mortgages from their product catalogue. This means that you’ll be restricted to their qualifications which are usually very narrow. Working with a single institution significantly limits your options, especially if your financial situation isn’t straightforward. In contrast, dealing with an independent mortgage professional, you will have access to products from over 200 lenders, including banks, monoline lenders, credit unions, finance companies, alternative lenders, institutional B lenders, Mortgage Investment Corporations, and private funds. Working with an independent mortgage professional will give you considerably more options to secure a better mortgage. Banks Employ Salespeople, not Mortgage Experts. Banks don’t employ mortgage experts; they employ salespeople. Banks pay and incentivize salespeople to sell their products. There is a fundamental misalignment of values here. If the bank incentivizes a banker to make a profit for the bank, how can they at the same time advocate for you and your best interest? They can’t. Banks don’t have your best interest in mind. In fact, the more money they make off of you, the better it is for their bottom line. However, when you work with an independent mortgage professional, you get the experience of someone who understands the intricacies of mortgage financing and will advocate on your behalf to get you the best mortgage. It’s actually in our best interest to assist you in finding the mortgage with the best terms for you. Once your mortgage completes, we get paid a standardized finder’s fee by the lender for arranging the financing. So although we get paid by the lender, that lender has had to compete with other lenders to earn your business. When you work with an independent mortgage professional, everyone wins. You get the best mortgage available, we get paid a standardized finder’s fee, and the lender gets a new borrower. Banks Rarely Offer You Their Best Terms Upfront. Banks are in the business of making money, and they’re usually pretty good at it. As such, banks will rarely offer you their best terms at the outset of your negotiation. This is especially true if you’re looking to refinance your existing mortgage. With over half of Canadians simply accepting the renewal offer they get sent in the mail without question, banks don’t have to put their best rate forward. Instead, they rely on you to be ignorant of the process and will take advantage of your trust in them. When you work with an independent mortgage professional, we don’t play games with rates and terms. Our goal is always to seek out the lender who has the best mortgage for you from the start of the process, and if there are any negotiations to be had, we handle them for you. There is no reason for us to do otherwise. In fact, the better we do our job, the more likely it is that you’ll be happy with our services and refer your friends and family. Banks Promote Restrictive Mortgage Products. As if it’s not bad enough that banks don’t offer their best terms upfront, they actually promote mortgage products that are restrictive in nature. The fine print in your mortgage contract matters; understanding it is challenging. Banks do what they can to make it hard for you to leave. Now, if you’ve ever heard stories of outrageous penalties being charged, this is what’s called an Interest Rate Differential penalty (IRD). Each lender has its own way of calculating the IRD. Chartered banks are known for their restrictive mortgages and high IRD penalties. When you work with an independent mortgage professional, we take the time to listen to your goals and assess your mortgage needs based on your life circumstances. The best mortgage is the one that lowers your overall cost of borrowing. So not only will we walk through the cost of the mortgage financing, but we’ll also clearly outline the costs incurred should you need to break your mortgage before the end of your term. This might be the deciding factor in choosing the right lender and mortgage for you. Working with an Independent Mortgage Professional is in Your Best Interest. Banks have limitations to the mortgage products they offer. Working with an independent mortgage professional gives you mortgage options! Bankers work for the bank; they are incentivized to make money for the bank. An independent mortgage professional advocates on your behalf to get you the best mortgage available. Banks rarely offer their best terms upfront; they leave negotiations up to you. An independent mortgage professional outlines the best terms from multiple lenders at the start of the process. Banks promote restrictive mortgage products that make it difficult to leave them. An independent mortgage broker will outline all the costs associated with different mortgage products and recommend the mortgage best suited for your needs. So if you’d like to talk about the best mortgage product for you, you’ve come to the right place. Please connect anytime. It would be a pleasure to work with you.

4 Signs You’re Ready for Homeownership

By Lisa Manwaring • 06 Nov, 2024

Buying your first home is a big deal. And while you may feel like you’re ready to take that step, here are 4 things that will prove it out. 1. You have at least 5% available for a downpayment. To buy your first home, you need to come up with at least 5% for a downpayment. From there, you’ll be expected to have roughly 1.5% of the purchase price set aside for closing costs. If you’ve saved your downpayment by accumulating your own funds, it means you have a positive cash flow which is a good thing. However, if you don’t quite have enough saved up on your own, but you have a family member who is willing to give you a gift to assist you, that works too. 2. You have established credit. Building a credit score takes some time. Before any lender considers you for mortgage financing, they want to see that you have an established history of repaying the money you’ve already borrowed. Typically two trade lines, for a period of two years, with a minimum amount of $2000, should work! Now, if you’ve had some credit issues in the past, it doesn’t mean you aren’t ready to be a homeowner. However, it might mean a little more planning is required! A co-signor can be considered here as well. 3. You have the income to make your mortgage payments. And then some. If you’re going to borrow money to buy a house, the lender wants to make sure that you have the ability to pay it back. Plus interest. The ideal situation is to have a permanent full-time position where you’re past probation. Now, if you rely on any inconsistent forms of income, having a two-year history is required. A good rule of thumb is to keep the costs of homeownership to under a third of your gross income, leaving you with two-thirds of your income to pay for your life. 4. You’ve discussed mortgage financing with a professional. Buying your first home can be quite a process. With all the information available online, it’s hard to know where to start. While you might feel ready, there are lots of steps to take; way more than can be outlined in a simple article like this one. So if you think you’re ready to buy your first home, the best place to start is with a preapproval! Let's discuss your financial situation, talk through your downpayment options, look at your credit score, assess your income and liabilities, and ultimately see what kind of mortgage you can qualify for to become a homeowner! Please connect anytime; it would be a pleasure to work with you!