Top 5 Questions to Ask your Mortgage Lender
KellyHudsonMortgages • December 19, 2016
The decision to purchase your first home can be a huge, life-changing event and you need to know exactly what you are getting into. Being prepared is the first step
When you are ready to buy a home, and you need mortgage there i s a lot of information to research and understand. I’ve put together a list of questions to help you make an educated decision regarding choosing the right mortgage lender for your situation
- How the penalties are calculated if I break my mortgage early? Specifically ask what rate the lender uses to calculate the “interest rate differential”.
- Typically, banks & credit unions have “posted rates” which are higher than their actual mortgage rates. They use these higher “posted rates” to calculate your penalty if you need to break your mortgage early.
- The inflated posted rate penalty can be 3- 5 times higher than a mortgage lender that does NOT inflate their posted rate.
- 60% of people break their mortgage before their term is over, so asking this question could save you thousands of dollars.
- Mortgage Penalties – Ouch… How Much??
- Is this a “collateral charge or revolving” mortgage or a conventional mortgage?
Many lenders have started putting all
of their mortgages into what is called a “collateral charge”. For the right client with a lot of equity in their home, this product can be very useful. Most big banks and credit unions only offer collateral charge mortgages.
- The disadvantage of a collateral charge mortgage is that you cannot “switch” it to another lender once your term is over at NO CHARGE.
- You have to pay discharge a collateral charge mortgage and re-register a new mortgage with your new lender, which will cost you an around $1000 for legal fees and appraisal costs. It will cost you to leave your current lender… which makes these mortgages sticky and hard to get out of.
- Collateral vs Conventional Mortgages… What the Banks don’t want you to know…
- Can I “blend and extend” my mortgage if I buy another home?
- Most variable rate mortgages cannot be “blended”. Typically, the penalty to break a variable is 3 months’ interest. Some lenders have quietly changed their policies and now instead of allowing you to add new money to a mortgage in the event of a new purchase, they require you to break your mortgage and pay the full penalty.
- Some clients have been caught off guard by sneaky lenders who don’t tell them this until only a few days before close, at which time it’s too late to switch lenders.
- What happens to my mortgage life and/or disability insurance if I switch to a new lender at the end of my term?
- For people who take out Mortgage insurance offered by their bank or lender, the challenge is that if you want to “switch” your mortgage to another lender at the end of your term, you have to re-apply for insurance.
- The downside to this is that you’ll be five years older (more expensive), and if you have developed any health issues during the previous 5 years, you may not be able to requalify for Mortgage insurance.
- Purchasing mortgage insurance, separate from your lender, stays in place the whole time you have your mortgage, it doesn’t matter who your lender is.
- What happens at the completion of your mortgage term (typically 5 years)?
- Most banks know that clients won’t negotiate the best rates so typically their renewal offer isn’t competitive.
- Working with an independent mortgage expert keeps lenders honest about rates. An independent mortgage expert will make sure you have the best options available every time your mortgage comes due.
Would you like more information regarding mortgages? Give me a call and let’s have a chat.
Kelly Hudson
Mortgage Expert
Mobile: 604-312-5009
Kelly@KellyHudsonMortgages.com
www.KellyHudsonMortgages.com
Kelly Hudson
MORTGAGE ARCHITECTS
RECENT POSTS
Decisions relating to real estate can have significant financial and legal consequences. Before deciding how to share ownership of what is likely one of the largest investments of your life, I recommend consulting a real estate lawyer. Many Canadians purchase property together — including spouses, common-law partners, family members, friends, and business partners. Because ownership structure affects estate planning, taxes, creditor exposure, and control over the property, it’s important to understand your options before you sign. In Canadian property law, there are two primary forms of co-ownership: Joint Tenancy Tenancy in Common While these terms may sound similar, they have very different legal and financial effects — particularly if one owner dies, sells their interest, separates, or faces creditor claims.
If you’re 55 or older and own your home, chances are you’ve heard about reverse mortgages. Sometimes they’re described as a “retirement lifesaver.” Other times they sound risky or confusing. The truth? They’re neither magical nor terrible. They’re simply a financial tool — and like any tool, they work well in some situations and not so well in others – EDUCATION is the key! Let’s break it down in plain English. So… What Is a Reverse Mortgage? A reverse mortgage allows you to borrow money against the value of your home — without making monthly mortgage payments. Instead of you paying the lender every month, the interest gets added to the balance. The loan is typically repaid when: The home is sold You move out permanently Or you pass away In Canada, reverse mortgages are currently offered by: HomeEquity Bank (CHIP Reverse Mortgage) Equitable Bank Bloom Financial You still own your home and your name stays on title. That part often surprises people. How It Works (Simple Version) To qualify: You must be 55 or older You must own your home (you can still have a regular mortgage — it just needs to be paid out) You can usually borrow up to about 55% of your home’s value (the older you are, the more you may qualify for) You don’t make monthly payments. But you must continue to: Pay property taxes Keep home insurance in place Maintain the home The money you receive is tax-free. It can come as: A lump sum Monthly advances Or a combination of both That flexibility is one reason many retirees like this option. Why Do People Consider Reverse Mortgages? Most of the homeowners I speak with aren’t looking for luxury spending money. They’re trying to solve real life situations: Covering rising living costs Paying off debt before retirement Managing health or care expenses Staying in their home longer Helping adult children with a down payment For many Canadians, their house is their largest asset — but it doesn’t create monthly income. A reverse mortgage turns some of that home equity into usable cash. The Pros (The Reasons People Like Them) 1. No Monthly Mortgage Payments This is the big one. If you’re living on CPP and OAS, removing a monthly mortgage payment can dramatically reduce stress. Cash flow improves immediately. 2. You Can Stay in Your Home Most people I meet don’t want to move. They love their neighborhood. Their friends are nearby. Family visits often. A reverse mortgage can allow you to age in place instead of selling before you’re ready. 3. The Money Is Tax-Free Because it’s borrowed money — not income — it does not affect: Old Age Security (OAS) Guaranteed Income Supplement (GIS) That’s a major advantage compared to withdrawing from investments. There are no rules about spending. Some clients use the funds to stay in place – health care at home. Some clients renovate. Some travel. Some gift funds to children. Some simply create a safety cushion. It’s your equity – you decide. 5. You Keep Ownership The bank does not own your home. As long as you live in your home, maintain it, insure it, and pay property taxes — you own your home and can stay. 6. No Negative Equity Guarantee In Canada, reverse mortgages include protection so that you (or your estate) will never owe more than the home is worth — even if property values decline. That protection matters.
