7 Questions You Need to Ask Your Mortgage Broker
Referring to a mortgage broker is one of the best ways to get a great deal on a mortgage. Whether you’re looking to buy a new home or refinance an existing mortgage, brokers will help you navigate the entire (often tricky) process. Not only are licensed mortgage professionals experts in the field, but they will also do all the work on your behalf.
A mortgage broker acts as the intermediary between you and your mortgage lender. They will shop around and negotiate a deal to save you time and money. Once you decide to use the services of a broker, they will ask you questions relating to your financial situation and needs to get you a competitive mortgage rate. However, it is always helpful to go armed with questions so you have more clarity throughout the process.
Here are 7 important questions to ask your mortgage broker:
1. What are the fees associated with your services?
It is likely that you’ve done your due diligence and shopped around until you found a broker who offered competitive rates. However, it is still essential to understand how they’re compensated for the services they provide. While, typically, mortgage brokers offer their services for free or minimal charges, there will be additional fees you may need to cover for appraisal, as well as legal fees.
Are you curious about how a broker makes their money if they’re unpaid by you? Brokers typically earn a fee for introducing you as a client to a lender. However, since most lenders offer similar fees, you’re still getting unbiased advice at no cost to you!
2. Can I get pre-approved?
Once you decide to work with a broker, they will look into your financial records to determine your eligibility. After analyzing your income, credit, and down payments, brokers will typically give you a letter stating the mortgage amount you’ve been approved for. This rate gets locked in for anywhere between 90 to 120 days, giving you the time to look for homes and navigate the housing market. If your approved mortgage rate goes down by the time you’re ready to apply, you’ll get the better of the two rates. If the rates go up, you’ll still be able to go ahead with your pre-approved rate.
3. Which is better, a fixed or variable rate mortgage?
A fixed-rate mortgage implies that your mortgage rate and payment will remain the same for your mortgage term, which is typically around 5 years. A fixed-rate mortgage will make the most sense for first-time homebuyers, as it is a low-risk option. It does come with a higher initial rate, however, so be sure to get all the fine print from your broker.
On the other hand, a variable rate mortgage can have your mortgage rate and payment fluctuate or change at any point during your term. If you happen to hit the market at a great time, your payment will go down when rates go down, and, vice versa, if the market rates go up. Variable mortgages will have a lower rate, but get your broker’s advice on if any change in the rate makes sense for your needs.
Ultimately, the mortgage you decide to go with depends on your personal situation and the level of risk you’re willing to undertake.
4. How do I get approved?
After you’ve been pre-approved, it’s time to work with a realtor to figure out where you’d like to live. After accepting an offer, your mortgage broker will decide on the lender to submit your mortgage application. Two to three days after submitting your mortgage application is when you should expect the initial approval. You are then able to secure the mortgage rate and term, and the legal process to help with closing will begin.
5. Is there any prepayment deal for this mortgage?
Prepayment is great because it helps you become mortgage-free faster. Check if your lender offers good prepayment privileges, such as increasing your regular payment and making a lump sum payment. Different lenders will have different rules on how often the payments can be made and if they can be doubled up, so be sure to check on that as well.
6. What’s the penalty for breaking my mortgage?
It’s not an uncommon situation for a borrower to end the mortgage early. If you’re looking for a mortgage refinance or decide you want to sell your home, then you may face a penalty.
The penalty, which occurs if you break your mortgage before your renewal date, can vary greatly depending on your rate. In Ontario, for variable rate mortgages, the penalty can be around 3 months’ interest. Fixed-rate mortgage penalties are tricky to calculate, as they involve the interest rate differential or IRD. This amount is calculated on the posted rate when you sign your deal, which is usually a little higher than the rate you actually get. Simply put, it can result in a higher penalty than a fixed-rate mortgage if you decide to break the agreement.
Every lender uses a different method to calculate penalties, so be sure to discuss rates and terms with your mortgage broker in case you decide to refinance or sell. There is sometimes a fee associated with prepayment, so that’s another important question for your mortgage broker as well.
7. Are there any closing costs?
Although your mortgage broker’s fees may be negligible, there will be closing costs to budget for. These include land transfer tax, real estate lawyer fees, home inspection, and appraisal. If you’re worried about paying off the closing costs, you do have the option to sign up for a cashback mortgage. The cashback you receive from the lender can be used towards the closing fees you need to fulfill.
In conclusion, do your due diligence in learning about your mortgage process and refinancing with your broker. Shop around for a broker that understands your situation and can find the perfect rate that’ll work for you. As you’ll be working so closely with your mortgage broker throughout the process, a great broker can make a high impact and difference on your homeownership journey and its experience.
For more information on the mortgage process and mortgage refinancing in Ontario, call Canadalend at 1-866-422-6536 or contact us here.