Money by Duckie Monster
In a recent article, David Larock shared with us some of the secrets and specialties of mortgage financial products. Some of his revelations are shocking, while some are reassuring. We’ll present you with an overview of David’s interesting article here.
First Option vs Best Option
As is the case in most markets, reputable lenders with a large turnover place a premium on their services and their market status. This is an interesting market quirk, seeing as the sheer size of these lenders should allow for economies of scale and thus push prices down instead.
What’s more, big lenders are relatively inflexible in their approach and are rarely willing to alter their terms to cater to individual clients’ needs. There are just too many clauses, footnotes, and exceptions (commonly referred to as “fine print”) in the contracts offered by large lenders that may catch you off-guard (and cost you dearly) during the term of the mortgage.
For these reasons, if you look no further than your home bank, you might miss out on many interesting financing options that you didn’t even know were available. These alternatives could even be cheaper and safer than a loan with your own bank. (Occasionally, your bank will indeed be the best option for you, but you can’t be sure until you’ve checked the other possibilities.)
Other Financing Alternatives
While going to a smaller lender is one of the most common alternatives, there are a few less conservative ways to secure financing for your new property.
One option specifically tailored to self-employed individuals is equity lending, which may secure you as much as 80% of the property value if you qualify. Because self-employment income is regarded as more volatile (and thus riskier) than employee income, lenders will often require full property appraisals and will charge you higher rates than the best in the market. It’s a viable alternative, though, if you don’t have a full-time job because traditional lenders may in fact refuse to lend to you in this case.
Counsellor by Joe Houghton
If you wish to purchase an apartment or house to rent it out, you might want to look into investment property financing. Lately, the guidelines for rental property underwriting have loosened, which led to an explosion of various financial products and offerings. This means that almost every investment property will find the best lender in a different company. Experienced mortgage planners will therefore be of great help in your quest for the best mortgage deal.
Traditionally, people take out mortgages with a 30-year repayment period. Because most people’s monthly income is limited, we can only pay a certain maximum amount every month for the mortgage, and this in turn limits the highest loan value that we can afford. If you have saved up more than 20% of the property’s price for a down payment, however, you may ask for a mortgage period up to 40 years. This practice is called extended amortization, and it may free up some of your cash flow (or let you buy a more expensive dwelling).
There’s a little trick you can use: applying for a mortgage with extended amortization can help you qualify for a larger mortgage amount (as we mentioned above), but once you’ve been approved, you can schedule your payments across a shorter period. This way, you’ll persuade the bank to lend you more, you’ll be able to make use of good rates, and you can decrease your interest burden at the same time.
Use Helping Hand
If you still need to be convinced of the necessity of looking for a mortgage everywhere you can, you should read the results of this Bank of Canada survey. It found that, on average, “loyal customers pay more” because they don’t research the wider market to look for a better deal — which can often be found with a little effort.
We suggest that you always work with an independent mortgage planner when shopping for a mortgage. These professionals usually take much better care of their clients than the rotating bank staff that don’t really know you. Put simply, you can form a truly lasting professional relationship with your planner, whereas this is nearly impossible with a faceless bank and its many employees.
If you want to find out more about a point that we’ve discussed in this article, please see the complete article on Mortgage Secrets by Dave Larock here. Better yet, contact Dave Larock directly here.
Were you in the market for a mortgage recently? Please let us know about your mortgage shopping experiences or ideas in the comments section.