My mortgage journey
“Trust, but verify.” – Ronald Reagan
With interest rates at historic lows, if you’re planning on buying a new home or your current mortgage is coming up for renewal then, chances are, you’ll be able to secure a great rate from your mortgage lender. Having recently bought a house, I thought I’d share some things that we learned in our mortgage journey that might be useful to you in yours.
Choose the right mortgage broker
For us, dealing with someone we trusted who had extensive experience in the mortgage lending field was a necessity. Having worked in financial services for a while, I’m lucky to know a few good mortgage brokers, however, if you don’t have anyone in your network that you would like to work with then ask friends and co-workers for referrals. Whether it’s your first mortgage, a renewal or a re-finance you want to make sure that the person you’re dealing with is reliable will respond promptly to your emails or phone calls and will take the time to answer any questions you might have.
Our rep had worked as a mortgage broker for over a decade and was able to give us good advice and information about the best way to structure our mortgage. Additionally, because our house is on quite a large area of land, he was able to guide us through the grey areas surrounding financing a rural property. Before talking to him, we didn’t know that, if you purchase a rural property with a residential mortgage, the mortgage lender bases the mortgage amount on the appraised value of the house plus 5 acres of land. If the property has more than 5 acres of land (like ours) then the purchaser is responsible for covering any difference between the purchase price and the appraised value. This was something our realtor wasn’t aware of and it could have caused us major issues if we hadn’t known about it going into the negotiation process.
Personally, I like dealing with mortgage brokers because they work with a variety of lenders and they can often offer guidance when it comes to selecting the one whose mortgage product best suits your needs. Even if your preference is to get your mortgage from the bank, you can often get a better mortgage rate from the bank by going through a broker than you can by going directly to the bank itself. This makes a broker a good place to start your mortgage rate research.
Negotiate your interest rate
All lenders have posted rates but it’s usually possible to get a rate that is significantly lower than the posted rate. Personally, I don’t like the haggling process (it always leaves me wondering if I could have got a better deal) but, now that so much information is posted online, it’s fairly easy to research what different lenders are offering and to use that as the basis for negotiations.
Be aware that some rates might seem really low but are only available to people who are taking out insured mortgages (less than 20% down-payment) or they might involve a lot of restrictions that leave you open to penalties. We talked to a couple of brokers, as well as our current lender and one of the major banks before we made our decision and, in the process, we discovered that knowing what else was on offer in the marketplace definitely gave us some leverage when it came to negotiating rates.
However, the one thing I particularly appreciate about the lender we chose is that their rates are their rates; they gave us their best offer right from the start so we didn’t have to worry about haggling and because we’d done the research we knew it was a good deal. By comparison, our previous lender insisted that the rate they offered us was the best they could do and then, when they found out we’d been offered a significantly better rate elsewhere, they offered to match it. We decided to stick with the new lender!
Fixed or variable?
We opted for a 5 year, variable rate mortgage because it had the lowest interest rate and we have the option to switch to a fixed rate without penalty at any point during the term of the mortgage. Whether you choose a fixed rate or a variable rate is up to you but make sure your mortgage representative walks you through the fine print and explains what the penalties are if you need to get out of your mortgage early and what your options are for making additional payments.
Related article: Variable or fixed-rate mortgage. Which is better?
While fixed-rate mortgages are the most popular because they offer the peace of mind that comes with fixed monthly payments, most research points to variable-rate mortgages being the better option because, over the term of the mortgage, you pay far less in interest than you would for a fixed-rate product.
If you’ve read my posts before, you may know that I am not a big fan of mortgage insurance. I don’t like the idea of paying premiums for a product that’s not underwritten before it’s issued because that means that it’s not guaranteed to pay out, plus it decreases in value over time and has the lender as the beneficiary rather than someone I selected. We opted for a joint, first-to-die, term life insurance policy that will cover the mortgage balance plus a little extra if something happens to one or both of us.
Related article: Do your homework before buying mortgage insurance
I am not a mortgage expert and, while I feel as though I did my part by researching rates so we could make an informed decision, I would say the most important part of the process for us was finding someone who had the right level of experience and expertise to help us through the financing process. Being able to ask questions (and get informed prompt answers) made the process a lot less intimidating and a lot less stressful and let us focus on all the other aspects of buying a home that takes up so much time.
Whether you’re getting your first mortgage or looking to refinance or renew an existing mortgage, I’d encourage you to do a little research and ask people you trust for referrals to people that they would work with again. As always, if you have comments or suggestions, I’d love to hear them.