Home-buying 101: how to choose the right mortgage lender
Shopping around for a mortgage lender goes beyond simply chasing after the best rate.
While it’s only natural to be driven by the numbers, especially if you’re early in your career and lower on the pay grid—there’s actually more to the ‘best’ rate than meets the eye.
For example, the lower the interest rate that’s being offered (regardless of whether rates are trending upward or downward), the stricter or more basic the mortgage tends to be.
However, if you prefer to have a mortgage that offers greater flexibility, then it’s a good rule of thumb to evaluate your options beyond the rate so that you’re able to choose a mortgage that best suits your needs.
That means you’ll first have to determine what those needs are:
- Peace of mind: Are you the type of person who likes to be prepared to cover all of your expenses in case of an emergency? Let’s say your district decides to take strike action during collective bargaining, or your spouse has to take time off work. You may need to research mortgage options that enable you to lessen the financial burden, if and when an emergency situation comes up. Here’s how to prepare for sudden financial challenges.
- Affordability: Are you worried that your monthly mortgage payments will severely limit your cash flow to cover other areas? If so, find out what kinds of options are available to you (such as choosing a longer amortization period or consolidating debt to increase cash flow) and then compare those options with multiple lenders. Here are 5 tips to boost your cash flow by up to $500 a month.
- Flexibility: Will you want to make prepayments once or twice a year? Maybe more? If that’s the case, then you’ll want to make sure the lender won’t charge you penalties for making any prepayments. Learn 3 simple strategies to pay off your mortgage years faster.
Once you’ve prioritized your needs, create a list of questions to ask a potential lender, such as:
- Do I have the option of making prepayments without penalties?
- If prepayments are included, what is the frequency that is allowed? (I.e. once a year, twice, more)
- What kinds of fees am I looking at if I decide to break my mortgage/sell my home before the end of the term? (This is called the interest rate differential (IRD) and how those fees are calculated.)
- How familiar are you with the financial needs of education members?
- Are there any additional fees/commissions that I should know about?
Tip: If you’ll soon be moving up the pay grid or are expecting an inheritance, you may decide to put that extra money toward your mortgage. Be aware, however, that some lenders may limit the amount of lump sum payments you can make by up to as much as 20%. Anything over that amount would mean having to incur a penalty—so be sure to discuss any excess payments with your lender before you make them.
Also, be sure to reach out to more than one prospective mortgage lender.
Just as you would want a second or even a third opinion for any medical situation, meeting with more than one mortgage lender will give you a better idea of whether the information you’re receiving will be consistent across the board.
Furthermore, ensure you’re making an apples-to-apples comparison when vetting lenders.
If you’re leaning towards a variable-rate mortgage, for example, then compare that exact mortgage type with different lenders. Also be sure to go beyond the posted rate by asking if they have any special offers, how long they’re able to hold the rate, and what kind of flexibility or restrictions there might be.
Tip: If you’re thinking of leveraging your home equity to cover the cost of renovations, you should know this technically counts as refinancing your mortgage, which can come with massive penalties. Instead, it could be more cost-effective to open a separate loan or mortgage, leverage savings, or tap into investments like TFSA.
If you don’t have the time to research multiple lenders and rates, consider working with a mortgage broker.
The main benefit of working with a brokerage (like Educators Financial Group) is that they save you the time and headache of having to do all the research yourself. Plus, mortgage brokers have regular contact with a wide variety of lenders, some of whom you may not even know about. This means they may also be able to source special rates from these lenders due to the volume of business generated—rates that might be lower than you could get on your own.
If the mortgage needs of education members were developed into a lesson, you would definitely get the master class with Educators Financial Group.
Having worked exclusively with education members since 1975, we understand everything from your pay grid and pension to the unique financial challenges you face. With that rich history and experience, you can feel confident that your mortgage needs are in good hands with us.
Have one of our mortgage agents contact you to learn more about the benefits of choosing Educators Financial Group for your mortgage needs.
And be sure to check out other articles in our ‘Home-Buying 101’ series:
- The 4 essential pieces to pre-mortgage homework
- Uncovering the hidden costs of buying
- The lowdown on making the down payment
- 5 tips on how to budget after you’ve bought
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