How do I find the best mortgage for me?
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First and foremost, if you are ever stuck at this phase, please reach out to us. We’ve been helping our clients prepare and find financial products that suit them best for 45 years. Money matters can be the most difficult in real estate, as they are in life in general.
We’re here for you and we will support you in finding all the information you need.
What is a mortgage?
Most of us don’t have the luxury of being able to pay the full purchase price of a property - enter, the mortgage. After saving money for a down payment, to cover the rest of the cost you’ll need support from a mortgage lender.
Basically, a mortgage is a massive loan!
A mortgage is a long-term loan that may need to be renewed multiple times over its lifetime and there are many different ways to structure a mortgage and its applicable interest rates. Generally, the key elements that make a mortgage different from a conventional loan are:
Your loan is secured by a property
You may have a balance owing at the end of your contract
You normally need to renew your contract multiple times until you finish paying your balance in full
You may have to meet qualification requirements including passing a stress test
You need a down payment
You may need to break your contract and pay a penalty
Your loan is typically for an amount in the hundreds of thousands of dollars
Mortgage interest rates
Interest rates over the life of a 25 or 35-year loan have a large impact on the value of the loan you will repay, thus, getting the best rate is crucial. Every time you renew your mortgage term, you renegotiate your mortgage interest rate. This means your mortgage payments can be higher or lower in the future.
When you apply for a mortgage, your lender offers you an interest rate. You can negotiate this rate to see if they can offer you a lower rate. The interest rate your lender offers you may depend on:
The length of your mortgage
The type of interest you choose
The current posted interest rate offered by your lender
Your credit history
If you’re self-employed
If you qualify for a discounted interest rate
The type of lender you choose like a bank, credit union, financing company or mortgage investment company
The specific lender
Checking out various different rate options is a must, be sure to shop around and compare different providers.
Interest rate types
When you apply for a mortgage, your lender may offer different interest options. These can be subject to change when you renew your mortgage periodically.
Fixed interest rate
A fixed interest rate will stay the same for the whole length of the mortgage, these are usually slightly higher than variable interest rates as they offer you both you and the bank protection against high and low interest rate scenarios. This rate can be renegotiated when you renew your mortgage.
Variable interest rate
A variable interest rate can increase and decrease during the term. Typically, the interest rate is lower with a variable interest rate than a fixed interest rate.
With a variable interest rate, you can keep your payments the same for the duration of your term. Lenders call this a fixed payment with a variable interest rate. You also have the option to opt for an adjustable payment with a variable rate. With adjustable payments, the amount of your payment will change if the rate changes.
Hybrid interest rate
A hybrid or combination mortgage has both fixed and variable interest rates. Part of your mortgage has a fixed interest rate, and the other has a variable interest rate. The fixed portion gives you partial protection in case interest rates go up. The variable portion provides partial benefits if rates fall.
Types of mortgage
Depending on your unique financial situation and real estate goals, there will be different types of mortgage available that involve slightly different contract terms.
Open
Closed
Convertible
Hybrid
Reverse
Stay tuned for a breakdown of what each of these entail!
Open mortgages
The interest rate is usually higher than on a closed mortgage with a comparable term length. It allows more flexibility if you plan on putting extra money toward your mortgage.
An open mortgage may be a good choice for you if you:
Plan to pay off your mortgage soon
Plan to sell your home in the near future
Think you may have extra money to put toward your mortgage from time to time
Closed mortgages
The interest rate is usually lower than on an open mortgage of a similar length. Closed term mortgages usually limit the amount of extra money you can put toward your mortgage each year. Your lender calls this a prepayment privilege and it is included in your mortgage contract. Not all closed mortgages allow prepayment privileges. They vary from lender to lender.
A closed mortgage may be a good choice for you if:
you plan to keep your home for the rest of your loan’s term
the prepayment privileges provide enough flexibility for the prepayments you expect to make
Convertible mortgage
A convertible mortgage is an agreement made at the beginning of a term that allows homeowners to change the type of mortgage they hold during its term. If a homeowner wants to start with an open mortgage and then lock into a closed mortgage, a convertible mortgage is the right choice.
It offers lower rates than an open mortgage and has the option of switching to a closed term. A conversion to a fixed rate mortgage can also be done by most lenders when the borrower has originally selected a variable rate mortgage and now wishes to move to a fixed rate before the end of the term.
Hybrid mortgage
A hybrid mortgage is a term used when there is more than one type of mortgage contained in a single mortgage registration. The registration could include a fixed rate portion, a variable rate portion, a line of credit portion, or any combination of these.
Each lender will have their own unique name for this type of mortgage allowing anywhere from 2 to 100 different products contained in the registration of the mortgage. This product is often suggested for the savvy borrower who will use this as part of their overall financial plan.
Reverse mortgages
This type of mortgage allows homeowners 55 years and older to convert their home equity into either a lump sum payment or monthly cash payment(s), generally for living expenses.
A homeowner’s equity is drawn down by the lender to the homeowner - the borrower.
When the homeowner no longer wishes to occupy the property as their principal residence, or upon the death of the borrower, the loan balance is due. The balance of the loan is settled from the proceeds of the sale of the property either by the owner themselves or their heirs.
How to find the best mortgage lender or broker
Finding the best mortgage lender will require a bit of research and some patience. There are many great products and providers out there, the best advice we have is to shop around and compare:
Rates
Loan terms
Down payment requirements
Property insurance
Closing costs
And all other fees associated with the process
Before you start hunting around for a lender, there are a few things you can do to get great offers.
Ask your REALTOR®
Checking in with your REALTOR® first is always a good place to start, especially if they, like us, have 45 years of industry experience… We know great mortgage brokers and lots of lenders that cater to various different situations. We regularly seek feedback from our clients to keep our information up to date and ready for you to use.
Speak to a mortgage broker
A mortgage broker can do the legwork for you by evaluating your application and gathering quotes from multiple lenders who closely match your needs. See how the loan offers from a broker compare against those you find on your own. Look at differences in rates, fees, points, mortgage insurance, and down payments to compare what your bottom-line costs will be.
Prepare your credit score
If you’ve read our guide to preparing your credit score for your mortgage you are already on the right path. Going in with your credit score in the best place possible will allow you to breeze through the application and get the best offers.
Get pre-approved for a mortgage
Applying for a mortgage preapproval with three or four different lenders, or having a mortgage broker do this legwork for you, gives you an apples-to-apples comparison on loan offers. It’s a great way to get the most accurate price offers back for you to compare.
Lenders may have different documentation requirements for preapproval.
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