Real estate continues to be a hot commodity in most parts of the country, despite the many changes we’ve gone through over the last few years. Prices in some areas are up and listings are in short supply in other areas, but the housing market overall has been moderating over the last year, and analysts are forecasting a balanced market for the rest of 2019 and into 2020.
Interest rates are comparatively low and competition among lenders to offer favourable rates is high. It’s always a good idea to read the fine print to make sure you’re getting the best mortgage product, at the best rate, for your particular need.
Because lenders do differ, it’s important to know what features are important to you before deciding on a lender. Here are six characteristics of mortgages to assist home buyers assess their offers:
- Blend and Extend. The "increase and blend” option has been around for almost 20 years and may be an option in some situations. For example, if your current lender doesn’t allow a change in the maturity date, then you’re locked into the remaining time left on the term. While that’s not the end of the world, in a rising rate environment this can be inconvenient. If you’re moving up, and buying at your maximum loan-to-value, you probably don’t want just a 1 to 2-year term, and with the new benchmark rule, you may not even qualify. If rates have dropped since the original mortgage you could run into the "Interest Rate Differential” (IRD), which might be too large and you can’t move.
- Early Payout Penalty Calculation. Some chartered Banks are known for their extremely large IRD penalties. If you don’t know whether you’ll keep the mortgage for the entire term then make sure you understand the payout penalty.
- Mortgage Registration. Is the mortgage registered as a non-standard charge, either a running account, or a collateral charge? If so, then it becomes challenging to switch this mortgage out to take advantage of lower rates, although collateral switches are becoming more widely available. Consider this scenario: If the lending institution knows you will have to incur $1,000 or more in possible costs, as well as put in the time and effort to complete a refinance with another lender, then there might be little incentive to offer you best rates at renewal time when a small rate reduction might be enough to keep your business. On the other hand, there are advantages such as making it easier to qualify with fewer expenses down the road if you need to access additional funds.
- Pre-Payment Privileges. Is the lender offering 10/10, 15/15, or 20/20? That means allowing prepayments of 10%, 15 % or 20% annually on the outstanding balance of the mortgage. Also, can these lump sum payments be made anytime per year or only at the mortgage anniversary? And how easy is it to make lump sum payments? Do you have to go into the branch, call a 1-800 number? Or can you simply go online and do it. These are important factors to consider.
- Porting Features. This feature can vary from lender to lender. Read the fine print, especially if you know you might need to move before the mortgage maturity date. Some lenders require a sale and purchase to occur on the same day in a port, which can be inconvenient. A more flexible, and available program allows typically up to 60 days gap or 60 days overlap; and then there can be exceptions allowing longer periods beyond that.
- Online Access. All of the chartered Banks offer online access as do a number of monoline lenders. Generally online access allows you to see your balance, make additional lump sum payments, or make a payment increase. This can be a time-saving feature for tech-savvy consumers.
There is more to getting a mortgage than just rate. Talk to a mortgage broker first who can help you navigate the mortgage terms and who can help you find the best product for your needs.