Some of you will be first-time home buyers soon and you may be asking family or close friends where they would suggest you go to discuss your future mortgage needs. Some may refer you to their lender of choice or directly to an Accredited Mortgage Professional (a mortgage broker). In the end, you should feel comfortable choosing someone who has many years of mortgage lending experience combined with the ability to share with you all the many various types of mortgage products and current rates available among a host of lenders. You will quickly learn that not all lenders are the same and that not one lender stands alone to provide you with the best rates and products. Most of us concentrate on what we feel is the most important question…Who is offering the best rate for the term you are considering? Finding the best rate is somewhat of a “treasure hunt” unless you seek the advice of a mortgage broker. In addition to providing you with this information, you will also be advised of which lenders have tougher qualifying guidelines, more stringent exit clauses, or some general “buyer beware” concerns. As Accredited Mortgage Professionals, we not only will provide you with unbiased mortgage advice but will share some concerns and pitfalls with some of the lenders that are anxious for your business.
As an example, one major chartered bank recently has made the decision that if you choose a conventional variable rate mortgage with them and if your property value were to drop, they can request that you pay down your mortgage or they will take whatever action deemed necessary. Let’s take a look at an example…Let’s say you purchase a residence for $500,000 and took out a variable rate mortgage for $400,000 (80% loan to value). Let’s imagine that in a few years from now your property has dropped to an appraised value of $400,000 (sound familiar?). 80% of this lower value is $320,000 (which is the maximum mortgage now available). If your mortgage rate is 3.5% and amortization was 30 years then you will still have approx. $379,000 owing after two years. This bank can now request that you pay the difference of $59,000 ($379,000 – $320,000) to stay within their 80% loan to value guidelines! So how many people will read the fine print of their mortgage? Will you?
Here is another example (same lender) that insists on registering all their mortgages as a “running account”. That’s fine for those of us wanting a re-advanceable mortgage with (or without) a line of credit attached. But for those who have purchased a residence with 5-10% downpayment, most likely will not qualify to refinance anyways anytime soon as the maximum you can borrow is 80% of your property value. So when your mortgage is up for renewal you cannot transfer your mortgage to another institution for a better rate without incurring legal and appraisal fees. Your mortgage must therefore be registered as NOT a “running account” to avoid unnecessary costs. I have helped many new clients who were shocked and disappointed to learn that their existing mortgage was a “running account” but were never told.
In conclusion, it is very important to go over all the details of your new mortgage and best to do so BEFORE you sign up and are locked in. Take the time and get professional mortgage advice and assistance from an experienced Accredited Mortgage Professional.