Owning a home can be a great investment if you know what to look out for in a mortgage. Preparation is critical at every step of the process. Other than keeping tabs on the interest rates and locating the perfect home, a mortgage application takes the lion’s share of the process. Planning your financial affairs ahead of time relieves you of the stressful burden that comes with seeking a mortgage.
The following are nine tips on how to find the best mortgage lender:
1. Seek Substantial Prepayment Privileges
When looking for the best mortgage, don’t be blindsided by low rates. The best mortgage is not necessarily the one with the lowest rate. There are other factors to consider beyond this. For instance, you need to factor in mortgage penalties, prepayment and portability. These factors are critical, especially when considering investment plans and second mortgages.
Bear in mind that prepayments vary; hence, interest rates may be inconsequential when dealing with a mortgage application. For example, if your target is to pay for the mortgage as quickly as possible, you should look for private mortgage lenders with a flexible prepayment package. Such a mortgage should be backed by substantial prepayment privileges devoid of punitive mortgage penalties.
2. Consider Loan Penalties
Loan penalties is going to be a key factor for how to find the best mortgage lender. When considering a mortgage lender, do not ignore their mortgage penalties, especially when purchasing an investment property or refinancing a mortgage since doing so could be detrimental in the unfortunate event of default. It is better to choose a mortgage with lower penalties, coupled with slightly higher rates if there is a remote chance you may break your mortgage.
Although loved by most Canadians and big banks, five-year fixed-rate mortgages, despite their security and safety features, have the highest mortgage penalties.
3. Consider Portability
A good mortgage lender has room for mortgage portability. Remember to read the fine lines on portability. Do not shoot yourself in the foot by assuming your mortgage is portable.
If there is a remote chance you could sell your property and buy a new one during the mortgage tenure, choose a mortgage lender that supports mortgage portability. Doing this shields you from high mortgage penalties on a new property purchase. Always pick the best deal, and remember that some portability clauses are more generous than others.
4. Does It Have a Collateral or Standard Charge?
When choosing a mortgage lender, check if the contract comes with collateral or a standard charge. A second or first mortgage with a collateral charge creates a future opportunity for taking a home equity line of credit (HELOC). However, it makes it difficult to move the mortgage upon renewal. As a result, you may end up with substandard mortgage rates upon renewal.
5. Affordable Closing Costs
Factor in closing costs such as tax, land transfer, home inspection, and conveyancing fees into your budget. Your bank does not factor them; so, you should. As a general rule, assign up to 4% of your budget to closing costs.
6. Do Not Jeopardise Your Mortgage Application
Mortgage lenders keenly consider your income and credit when approving a mortgage application. Things that can put a mortgage application in jeopardy include taking out auto loans, making large purchases on a credit card and losing your job in the middle of a mortgage application. Such scenarios could lead to mortgage application disqualification.
7. Use a Mortgage Brokerage Service
Mortgage brokers are likely to get better deals than you since this is their area of expertise. It is what they do daily. They are acquainted with mortgage products than you possibly are. Using them saves you time, save you money and ultimately protects your credit score.
Mortgage lenders weigh in heavily on your credit score since it is a credible indication of your financial trustworthiness and your ability to meet your loan payment obligations. Generally, your credit score is your overall financial health. It ranges between 300-900 points across five categories: Poor, Fair, Good, Very Good and Excellent. Maintaining a higher credit score predisposes you to lower mortgage rates.
Ideally, keep your scores above 660; the higher, the better. Timely debt payments and restraint from unnecessary use of available credit keep your credit scores high. It is prudent to quarterly-check your credit score and make conscious efforts to improve it.
8. Put Down a Substantial Down Payment
It is smart to put down a substantial down payment. Doing so means you will borrow less, which translates into lower interest rates and, consequently, increases your chances of mortgage approval.
A less than 20% down payment of a home’s purchase price attracts mortgage loan insurance, which increases your monthly mortgage repayment. The higher a down payment is, the higher the chances of mortgage approval.
9. Maintain a Stable Income
Mortgage lenders only approve mortgage applications from applicants with a proven steady income. Hence, having a full-time job is critical, even if you have supplementary income. The lenders interpret this to be proof of payment ability. Having a full-time permanent job also improves your chances of mortgage approval. So is applying jointly with a partner who, like you, has a full-time job.
The key to attracting the best mortgage lender is to make yourself eligible. Among the best ways of doing this is to pay pre-existing long-term debts before taking on new ones. Having too much debt puts a strain on your debt-to-income ratio, which is a major factor when determining your mortgage eligibility. Where possible, get a mortgage pre-approval to secure awesome mortgage deals that are within your budget. Resist the temptation to spend the entire mortgage approval and only take what you can afford.
