While the Calgary home finance industry has undergone a great deal of change with the rise of alternative lenders and online brokerages, one thing that hasn’t changed is the due diligence you should always perform before committing yourself to any mortgage. Remember that there is no single mortgage that’s right for everyone. You should always begin by evaluating your current financial situations and your unique needs.
- Whether or not your financial situation is stable
- Your current credit rating
- How long you plan to stay in the home
- Whether you would prefer fixed or variable payments
- If retirement is on the horizon
- Whether or not you have children going off to college or university
- When you would like to be mortgage-free
Once you’ve used these thinking points to generate a clear picture of your current situations and your ideal mortgage, it’s time to dig deeper. We are glad to provide this 11-step checklist to help you evaluate each and every mortgage you are offered:
- What is the annual percentage rate (APR) on the mortgages you’re considering? As a general rule, it’s a good idea to be skeptical of the first APR you’re quoted, as the unfortunate reality is that many mortgages come with bait-and-switch tactics. Such tactics lure customers in before the low rates are pulled off the table and replaced with higher ones–accompanied by a confusing, drawn-out explanation as to why.
- How large a down payment do you expect to make on the home? Most mortgages require a down payment between 5 and 20 per cent of the purchase price of the home. In general, the more money you put down, the more favourable your mortgage terms will be. Mortgages with down payments of less than 20 per cent require mortgage insurance, which will slightly inflate the cost of the transaction.
- Will it cost extra to lock in the current interest rate? Mortgage rates are subject to change, and to insulate themselves from market volatility, many lenders charge fees to “lock in” the quoted APR. Be sure you know how much this fee is, and calculate its costs against the benefits of locking in the rate.
- Are “discount points” being applied to this mortgage? Some mortgages come with so-called “discount points,” which are essentially prepaid mortgage interest points. They can add thousands of dollars to the cost of your mortgage, so clarify whether or not discount points are being applied to any mortgage you’re considering.
- Do you need to meet any specific criteria to qualify for this mortgage? Lenders will want to know how much you’re putting down, what your financial situation is like, how much annual income you earn, and how stable your employment is. An evaluation of your credit history, assets and liabilities is also a common part of the mortgage application process.
- How much are the closing fees? Ask how much the lender expects the closing fees will be. These fees are paid to the mortgage lender and all other companies involved in the financing arrangement. If a mortgage broker fails to provide an estimate of your closing fees, keep shopping. It’s a sign that they will be exorbitantly high.
- What are the pre-payment penalties? Most mortgages come with pre-payment penalties, which are fees that you will have to pay if you terminate the mortgage early by selling your home or paying off the balance of the mortgage in full. It’s especially crucial to negotiate favourable pre-payment terms if you don’t plan to live in the home for the life of the mortgage.
- Do you need to provide any additional documentation before finalizing the mortgage? Some lenders may ask you to provide documentation of your income, assets, liabilities and credit history. These are known as “full doc” mortgages, and they are standard. “Low doc” mortgages which don’t require as much documentation may be available, but typically at higher interest rates.
- How long will it take to process the mortgage? Approval can take anywhere from a week or two to a month or two. You should always be pre-approved for a mortgage before you start shopping for a home.
- Could anything potentially slow down the approval process? Major changes to your personal or financial situation could impact your mortgage application.
- Does the lender offer verifiable testimonials? A lot of lenders promise you the world, but do they deliver it? Ask them if you can contact any satisfied past customers or view current client satisfaction surveys. If the lender balks, consider taking your business elsewhere.
If you need any further advice, or if you’d like my expert guidance while shopping for Calgary mortgages, please contact me. I am a leading Calgary independent mortgage broker, and I have privileged access to dozens of lenders, hundreds of mortgages, and the expertise to help you secure the very best possible deal.