If you are considering using a mortgage broker, you’re probably thinking about the right questions to ask during the process of applying for a mortgage in Canada. Here’s a breakdown of some important questions you should consider asking.
Is the mortgage broker experienced and qualified?
A mortgage broker is a licensed professional who acts as an intermediary between borrowers (people who want to buy or finance a home) and lenders (those who provide loans to individuals or businesses to finance a property). Their job is to help borrowers compare different mortgage options and find one that best fits their financial situation.
Applying for a mortgage is a significant financial decision, and having an excellent broker is equally important. The starting point for most applicants is independent research. Family, close friends, and online search engines are all great resources to start your search. It’s always best to look for brokers and lenders with longstanding industry experience who are licensed to provide mortgages and mortgage advice.
What services does the mortgage broker offer?
Mortgage brokers offer a wide range of financial products and services to borrowers, so it’s important to ask about the full range of services they provide when you first meet them. For example, some brokers may only work with specific lenders and provide limited mortgage options.
Mortgage brokers can help with mortgage refinancing and renewals, and purchase financing including proper preapprovals. This means they can determine how much you can borrow before you start looking for a home and can help you renew an existing mortgage once the mortgage term has ended.
How does the application process work?
It’s important to ask your broker about the details of your application process. For example, you should enquire about the length of the loan, approval times, and the repayment terms that they offer you. This will help you better understand which mortgage option works best for you.
Each lender or broker has their own set of qualification criteria and policies that they follow during the application process. There are more than a few hundred mortgage products available in the Canadian mortgage landscape. It is important to work with a mortgage broker that can sort through the field and find the best solution for you whether you have a great credit history and score or even if you have a low credit score. The process is easy when working with a mortgage professional.
Generally, the mortgage process has four easy steps:
- Complete a mortgage application with your mortgage professional.
- Provide your mortgage professional the required supporting documents to start: Income documents (paystubs, letter of employment, CRA notice of assessment), down payment documents (savings account statements, investment statements), property information (purchase agreements, existing mortgage statements if a refinance or renewal), and a valid identification.
- Your mortgage professional will obtain a mortgage approval for you and will review the mortgage documents with you.
- You will meet with a lawyer or notary to sign the mortgage conveyancing documents.
Though the steps above are easy, they can be difficult in execution. So, having a mortgage professional like a mortgage broker working on your behalf is beneficial. You can start your mortgage application immediately here.
How will they determine the best mortgage option for your needs?
An experienced and reputable mortgage broker will be able to assess your financial situation and provide you with a list of options that suit your financial needs. They may also ask you a few questions about the purpose of your mortgage, like whether you are looking to buy a new home, renew an existing mortgage, or add a second mortgage on top of your existing mortgage.
Based on your financial goals and the lender’s assessment, your mortgage broker will assist by reviewing the options available to you. The clearer you are about your financial goals and the services you are looking for, the smoother the mortgage application process will be.
Are there any additional fees and costs involved?
Mortgages, home equity lines of credit and general home loans all have costs that are a normal part of the process. It’s important to ask your mortgage broker about all the potential costs; they will be able to answer this once they have a complete application from you. This can help you plan to avoid any surprises at a later date.
Here a few examples of some of the typical costs associated with obtaining a mortgage:
- Down Payment: This is the initial amount of money you put down towards your property purchase. The minimum down payment amount in Canada is usually 5% of the purchase price.
- Mortgage Default Insurance: If your down payment is less than 20% of the purchase price, you’ll have to purchase mortgage default insurance. You do not have to find or arrange this insurance; this will be handled by the lender where your mortgage broker places your mortgage application.
- Appraisal Fee: This refers to the cost of appraising the property professionally in order to determine its market value. It should not be confused with a “home inspection.” Your mortgage broker will order the appraisal from a list that is approved by the lender.
- Legal Fees: Homebuyers and mortgage refinancers will need a lawyer or notary to handle the legal aspects of the mortgage. This includes mortgage conveyance, paying out mortgages, property transfers, title searches and title registration of the mortgage.
Do they offer a fixed interest rate, a variable interest rate, or both?
In most cases, you’ll be offered a mortgage at either a fixed interest rate, variable interest rate, or both. A fixed interest rate is one that remains constant throughout your mortgage term. This rate is agreed upon with your lender at the start of your mortgage term. It will not change based on market conditions.
Conversely, a variable interest rate is one that fluctuates according to marketing conditions. They are tied to the prime rate (set by Bank of Canada) and will increase or decrease based on changes to the prime rate.
Usually, mortgage brokers and lenders offer both fixed and variable mortgage rates. There are advantages and disadvantages to both options.
A fixed-rate offers the security of a stable and predictable monthly payment; however, a variable rate will not offer the same stability due to dynamic market conditions. If you prefer budgeting with a consistent payment plan without any financial uncertainty, then a fixed rate will work for you. However, if you have a tolerance for changing market conditions and you believe that the prime interest rate will likely go down over the term of the mortgage, then a variable rate would work best for you.
The importance of using a mortgage broker
In conclusion, consulting a mortgage broker is a great way to find the right mortgage for you. Whether you are a first-time home buyer, looking to refinance or renew your existing mortgage, the right mortgage broker will guide you through each step and help you find the best possible solution.
If you’re looking for a mortgage in Canada, consider working with a mortgage broker and asking the right questions to get the most of your home-buying process.