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Ten Things Your Bank is not Sharing About Your Mortgage

It’s no secret that buying a home is a major milestone that many of us work toward. It’s such an important milestone that doing your homework before entering the process cannot be stressed enough. 

For decades, Canadians have simply relied on their friendly neighbourhood banker to provide them with what they need for their banking, investment, and mortgage needs. We all want our banks to be honest with us and share important information about our mortgages. Unfortunately, there are some things your bank is not telling you. But if you know what to look for, you may be able to avoid some problems in the future. Here are 10 things your bank may not be telling you about your mortgage.

1. Banks rarely offer you their best terms upfront.

We all know that banks are in the business of making money. And they can be pretty good at it. With this in mind, you shouldn’t expect too much from the offer you get from them. So, for you to think you have a very good rate from the bank, means you can most likely get a better offer from professional mortgage brokers, especially if you’re considering refinancing.

Since many Canadians easily accept the renewal offers that come in through the mail, banks have developed the habit of offering not-so-good rates.

2. Banks promote restrictive mortgage products.

You’ve possibly heard of people who faced outrageous penalties. This is what is called Interest Rate Differential penalty (IRD), and each lender has its own way of calculating it. As you’d expect, banks take advantage of this by giving restrictive mortgages and high IRD penalties.

As if it weren’t enough to keep you away from the best rates, banks include information in the contract that could be easily misunderstood, making it hard for ignorant Canadians to leave.

3. It pays to pay-off your mortgage quicker

Considering that banks are primarily profit-driven, they come up with methods to make illusive offers to secure their profits. For instance, they don’t tell you that the longer it takes you to pay your mortgage, the more revenue they make. They also generate their revenue through interest rates and service fees, and because mortgages are such large loans, they also carry a lot of interest.

4. A low payment isn’t necessarily a good thing

The amount you remit monthly for your mortgage is a function of your total mortgage. However, things like interest rates also play a factor. If interest rates are lower than usual, it might mean your monthly payment could potentially be lower, too. Although, over the course of a standard 25-year mortgage, interest rates will likely climb again, which means your monthly payment is also likely to go up. By extension, the bank gets to make more off you.

5. Your mortgage is about more than just the terms of repayment

Your mortgage contract is expected to contain items such as the amount of the loan, the terms of your repayment, the type of insurance you’re required to have, information about the reasonable upkeep of the property, and what happens if you’re unable to keep up your end of the agreement. Signing documents for a mortgage can be overwhelming and even intimidating, but it’s important to read the fine print and understand exactly what you’re agreeing to. It’s okay to ask lots of questions. In fact, we want you to ask lots of questions.

6. The banks’ interest comes ahead of yours

Like some businesses, banks care more about their bottom line than their customers. When it comes to getting a mortgage, banks put their rates ahead of the customer. Oftentimes, when the negotiation is done, the bank walks away as the greater beneficiary or even the only winner.

7. Posted rates can be negotiated

Just like the sticker price on a car isn’t always the actual price of the car, the ‘posted rates’ on the bank’s website are not the real rates of the market. The posted rates are usually 2-3% higher than the real rates. The banks use this to take advantage of unsuspecting Canadians. So, if you don’t know any better, be informed that when offered a rate, you shouldn’t hesitate to ask for a better rate. Or just consult with a mortgage broker. This brings us to our next point…

8. Yes, there are better mortgage options outside the bank.

While working with your bank may seem like the most convenient option, it’s crucial to remember that there’s an entire world of lenders out there who often offer better rates and features. Consulting a broker like Rateshop or a lender like Lendmax can give you access to a wider variety of full-featured mortgage options and rates that may be better suited for you. You should always shop around for your mortgage, especially at renewal time, to ensure you’re making the right choice. And it’s not as difficult as you might think! 

9. Time is not your friend

Once you've locked in your interest rate, the clock starts ticking. As the saying goes, time is money, and this is very literal when it comes to rates. Lock fees vary, as do rate lock policies among banks. Be informed; ask upfront. After you have chosen to lock your rate, get your financial documentation back to the lender in 24 to 48 hours, as needed in the process. While this is undoubtedly inconvenient, it will ensure that your loan closes within the timeframe for which the interest rate has been locked. 

10. You'd Better Have a Ton of Equity

Equity is a crucial factor when applying for a mortgage. If you intend to get the absolute lowest possible interest rate the market will bear, you're going to need a minimum of 30% equity in your home — ideally more. Mortgage pricing adjusters (factors that drive mortgage costs), like occupancy, credit score, and loan-to-value, begin after a loan-to-value of 65% or 35% equity. That means if you have 35% equity to finance a loan for an owner-occupied home, the pricing is going to be quite a bit better than if you have 25% down

Finding the best mortgage loan at the lowest rate is important if you want to get a good deal on your new home. There are a lot of things that can go wrong with mortgages, so it is important to do your research before applying for a home loan so that you know exactly what you are getting into.

 


Ali Zaidi UW Ali Zaidi UW 11/25/2022
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