How do you negotiate a mortgage to make sure you’re getting the best possible product? What do you need to know before you sign on the dotted line? Below are a few tips to help you find your way.
You could use the services of a mortgage broker, who can guide you through the process and help you find the lender that offers the best conditions at the best rates.
You should know that...
- Mortgage rates and conditions vary from week to week.
Just because your brother-in-law got a really low rate 3 months ago, you may not be so lucky!
- The services of a mortgage broker are free!
Their fees are paid by the financial institution for every loan they bring in.
- Mortgage brokers do business with multiple lenders.
The high transaction volume allows them to get the best rates and conditions for their clients’ needs.
- The loan conditions are more important than the rate.
Your mortgage broker can explain the difference in penalties between two lenders with the same rate. In some cases, the penalty can be 75% lower from one lender to another.
- Brokers must be licensed by the OACIQ.
Make sure your broker is licensed by the Organisme d’autoréglementation du courtage immobilier du Québec (OACIQ), Quebec’s self-regulatory body for real estate brokerage. This license is mandatory.
1) Can I increase my payments?
Most mortgage contracts allow borrowers to pay off their loan faster, but the terms vary. For example, some banks only allow the monthly payments to be increased by 10%. Other loans allow borrowers to increase their payments by 15%, 20%, or even 25%. And with a few lenders, borrowers can even double their payments.
2) Can I make a lump sum payment?
Most mortgages also offer the option to make lump sum payments each year, generally between 10% and 25% of the initial amount. Some lenders allow these payments only once during the year or on the anniversary date, while others have no restrictions.
3) How much is the collateral charge?
More and more financial institutions are registering mortgages for up to 125% of the value of the home (collateral or umbrella mortgage), regardless of the loan amount. This will enable you to increase your loan at a later date without having to go back to the notary. On the other hand, if the bank refuses to lend you more money because your credit history has deteriorated, for instance, you can't go elsewhere for a second mortgage. You’ll essentially be trapped.
4) How are the penalties calculated?
Divorce, job loss, new home...a lot can change in five years. To cancel your mortgage before the end of the term, you’ll have to pay a penalty of several thousand dollars. Find out how the penalty is calculated and ask for a concrete example of how much you would have to pay. Penalties used to be so hidden and problematic that the Government of Canada now requires lenders to clearly provide this information by phone, online and even in the loan agreement. But be warned: some mortgages don’t offer a way out. Paying your loan off before the end of the term simply isn't an option.
5) Can I move my mortgage?
Even at the end of the term, many mortgages are difficult to move. If another lender offers a better rate, you can’t transfer your loan by subrogation. You’ll need to refinance and get the maximum equity of 80% of the value of your home and go back to the notary, which simply isn’t possible if there’s not enough equity in your home. You’ll then be handcuffed to the bank.
Start negotiating or contact your broker at least 6 months before the end of your term. And most importantly, don't forget that if you don't take advantage of your right to shop around at renewal, how can you benefit from a better offer and put you and your family in a better financial position?
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