Should You Use a Mortgage Broker?

What you need to consider when choosing between a mortgage broker and going straight to a financial institution.

Patricia Lovett-Reid



Be it suburban split level, swank downtown condo or rural country manor, when it's the right fit, you know it. But having the keys in hand to the place that best suits you will take plenty of research and leg work — and will likely occupy your dreams at night. And it should. Buying a home is one of the biggest investments you'll make. Just as you wouldn't make a commitment of that size without asking the right questions and sneaking a peek under the rug, it's important to put equal effort into finding the right mortgage.

Generally, there are two ways to obtain mortgage financing in Canada — either indirectly through a mortgage broker, or directly through a financial institution or mortgage lender. The mortgage market is a highly competitive market and the players are standing in line to win your business.

* For more info on buying a house, check out our Home Buyer's Guide

So who are the players?

A mortgage broker does the shopping for you — presenting your information to lenders to find a fit. He or she has access to numerous lenders and can provide you information on various services and loan types, and will shop around for attractive rates and terms for your mortgage. The use of mortgage brokers is very common in the United States and they are growing in popularity in Canada. According to research by the Canadian Association of Accredited Mortgage Professionals (CAAMP), mortgage brokers closed approximately one quarter of all mortgage deals in Canada in 2010.

A mortgage lender in Canada is most likely to be a major bank, trust company, credit union or other finance company. Whether generated by a broker or a bank, chartered banks finance more mortgages than all other lending institutions combined. Most bank advisers or bank mobile specialists strive to provide a holistic solution that is best for you, using their suite of financial products and services. They might, for example, take into consideration all outstanding debt, such as credit cards, loans, or lines of credit as part of an overall solution for your particular needs. They could help improve cash flow and minimize your borrowing costs over the long term. Banks are aware of the highly competitive landscape and offer competitive rates.

So will it be a broker or a bank?

While there are advantages to both, my advice, no matter which route you choose, would be to have the right questions prepared for your mortgage professional. Interest rates are just the beginning. What might the new mortgage rules mean in your situation? Here are some important areas to consider:

Term: Ask your broker or lender to break down the costs of different terms. Do you need a fixed term to better sleep at night, or would a variable term work for you? If you expect to have extra money to pay down your mortgage, perhaps you should consider an open term versus a closed term.

Amortization: Have the bank or broker calculate the difference amortization schedules will make — will you spread the payments out over 25 or 30 years? Or can you do 10?

* For more info on buying a house, check out our Home Buyer's Guide

Prepayment allowance: How much and how often will you be able to pre-pay every year before being charged a penalty?

Frequency of payments: Which payment frequency is most suitable for you — weekly, bi-weekly, rapid bi-weekly? Will the lender allow you to make accelerated payments?

Portability: If you move, can you take your mortgage with you?

Assumability: If you sell, can the buyer, subject to a credit approval, assume your mortgage and rate?

Point of contact: Who can you call if you have a question or a problem? If you use a broker to arrange mortgage financing, will he or she have any involvement once the financing is in place? Are call centres and branches available for inquiries?

The CAAMP survey I mentioned also found mortgage holders reported, on average, that they obtained 1.96 quotes when they signed up for their current mortgages. That indicates that whether indirectly through a broker, or directly through a lender, many Canadians are getting a second opinion when it comes to mortgage financing. The best advice? Do your homework, shop around and be ready to pepper your mortgage professional with questions. Consider your mortgage as carefully as you will the purchase of your dream home.

Http://www.okanaganmortgages.com

Should You Use a Mortgage Broker?

Mortgage Industry in the Media

Mortgage Industry in the Media

In recent weeks, there have been numerous articles in the national media on the state of the Canadian mortgage industry. Issues regarding the impact of longer amortizations and a perceived failure to anticipate the effects of various mortgage products have been at the forefront. CAAMP (Canadian Association of Mortgage Professionals) Members Should Be Aware Of The Following Important Facts: Arrears and default rates remain low in Canada particularly when compared to the U.S. Canadian mortgage holders have on average over 50% equity in their properties. For all home owners, (those with and those without a mortgage), the equity ratio exceeds 70%. Longer amortization periods and 100% LTV mortgages do not equate to subprime or alternative mortgages which are based on a borrower's credit worthiness. Relatively few outstanding mortgages in Canada have 40 year amortization periods – only six percent or just over 300,000 mortgage holders out of 5.25 million. Mortgage products in Canada are transparent. Mortgagors with a variable rate product know their rate and most have the option to convert to a fixed rate product. In the past year, 40% of mortgage holders took out a variable rate mortgage with the expectation that declining rates will continue to drop. This is in stark contrast to the U.S. where the resetting of option ARM mortgages means millions of mortgage holders have been and will continue to face higher rates. A rise in default rates in Canada is not apparent. It's a fact that the economy is slowing, however if borrowers find themselves with financial difficulties, it will most likely be a result of their employment situation rather than their mortgage product. Differences between the Canadian and U.S. markets remain. The option ARMs that have and continue to be reset to higher rates are not common in Canada. Those who hold variable and even fixed rate products in Canada are now doing so in a declining interest rate environment. A greater percentage of mortgages in Canada are funded by balance sheet lenders than in the U.S. Subprime or alternative lending products were never as common in Canada. Canada has a rich history of mortgage insurance. Nearly half of all mortgages obtained in any given year are insured with a second approval process for mortgage applications. Underwriting principles and guidelines in Canada, while not perfect, are more thorough than in the U.S. Regulation for Canadian mortgage brokers and agents is more stringent than in the U.S. Several provinces have recently updated or are in the process of updating their origination legislation including Ontario, Quebec, Saskatchewan, Manitoba and Nova Scotia. There are now license requirements and in most provinces education and disclosure requirements. This will ultimately lead to enhanced professionalism in our industry and added security for Canadian borrowers. Statistics Source: CAAMP's Annual State of the Residential Mortgage Market in Canada, by CAAMP Chief Economist Will Dunning.

Mortgage Industry in the Media