Top 10 Questions to ask your Mortgage Broker today!
February 26, 2017 | Posted by: Allison Kurys & Kim Owen
Are you looking to get a new mortgage but not sure what questions you should ask your mortgage broker?
With the new mortgage rules effective November 2016, finding the right product for your situation has become even more complicated than before. It’s not just about finding the best rate; it’s also about selecting a product that meets your needs as well.
Here are what we believe are the top 10 questions to ask your mortgage broker to make sure you are getting the best rate AND product for your situation:
1) Is your mortgage application for a Renewal Transfer or a Refinance?
Due to the new mortgages rules, rates for Refinances are higher than those available for Purchases & Renewals. Even if you are not making changes to your mortgage and simply looking to transfer, you may still be considered a Refinance if your current mortgage is registered as collateral.
2) Is your mortgage already insured?
If you put less than 20% down when you bought the home, and have not refinanced since, you may qualify for lower rate options when simply transferring to another lender with no changes to the mortgage.
3) What is the maximum amortization allowed?
Most products now offer a maximum amortization of 25 years. If you require more than this, expect the rate to be higher as many lenders are now charging a premium for this.
4) What is your 'loan-to-value' (LTV)?
This factor looks at your mortgage balance compared to the value of your home. Expect to pay lower rates for an LTV of less than 65% versus an LTV of 80%. The lowest rates available are actually applicable for mortgages of over 80% LTV (i.e., when you have less than 20% down payment), but expect to pay CMHC Insurance Fees in this case.
5) Do the prepayment options suit your needs?
Prepayment options differ from lender to lender so be sure to ask your broker what they are offering if flexible prepayments important to you.
6) Is the product portable, and if so, what are the restrictions?
If there is a chance you may sell your current home and buy a new one before your term is up, it is important to ask your broker about the product's portability. There may be restrictions on this feature with certain lenders (such as requiring that you close the sale on your old property on the same day as the purchase of the new property, which can be very difficult to arrange).
In addition, some lenders do not offer Bridge Financing, so if the sale on your current home is closing after the new one, be sure to ask you broker about Bridge Financing options, or else you may need to have extra cash on hand to cover the overlap.
7) What is the product's early payout penalty?
Most lenders still offer standard penalties if you break your mortgage prior to renewal (i.e., 3 months interest or Interest Rate Differential [IRD]). However, some of the lower rate options currently available may come with the compromise of a higher penalty (i.e., 3% of remaining balance).
Some lenders will also agree to waive the penalty for military members who are forced to break their mortgage due to a posting.
8) Does the product allow you to break early?
If you want the flexibility of break early to Refinance or even transfer another lender midterm (let's say if rates drop), be sure to let your broker know. Some of the lower rate products restrict the option to break early, only allowing you to do so under certain conditions (i.e., if you sell your home).
9) Do you need to prove your income?
If you cannot do so we can still help, but expect your rate to be at least 1% higher.
10) Can you pass the government's 'stress test'?
All variable products and terms less than 5 years, as well as most of the lower 5-year fixed rate options currently available, require you to qualify at the Bank of Canada's 5-year 'benchmark' rate (Currently 4.64%). If you do not qualify at this benchmark, ask your broker to look for a product that will allow you to qualify at the contract rate instead (the actual 5-year fixed rate on the mortgage), but expect the rates to be higher for this option.