You are on the right track to finding the best mortgage rate. Like 78% of home-buyers, you went online to compare rates. Like 99% of homebuyers, you will go back to your bank and see if they will match what you found elsewhere. (We don’t have a source for the last figure, but we’re pretty sure it’s what happens 🙃).
It may sound counter-intuitive, but we highly encourage you to go back to your bank.
Here are 5 questions you should ask your bank, mortgage specialist or broker to make sure you get the best mortgage product:
🔷 If they offer to match our rate: What are the restrictions attached to the mortgage?
Why ask? You want to make sure this product suits your needs. Most banks will offer restrictive terms on the most attractive rates. This may include less, or no, prepayment privileges, higher penalties, no option to refinance, or sale clauses like the inability to break your mortgage unless you sell.
🔷 Over the lifetime of my mortgage, how will you track my progress to meet my personal saving goals?
Why ask? We believe that the best mortgage solution should always be working towards making you save. For example, if mortgage rates dip, you should be alerted when it’s advantageous to break your current term and absorb the penalty and convert into a new mortgage.
🔷 What will happen if I break my mortgage agreement before the end of its term? (You really want to know about penalties – and you really should read this)
Why ask? First: the bank penalties on a fixed mortgage are astronomical.
Second: It’s more likely than you think that you’ll break your mortgage before the end of its term. Not many people would enter a 5-year fixed mortgage anticipating that they will break it. (You may move to another property, sell, move in with your significant other, get a job in a different city, break-up or pass away (god-forbid), etc.). The reality is that when it comes to mortgages, the average completed term is about 36 months (yep, that’s much less than 5 years).
What happens when you break your mortgage? You pay a significant penalty. Something to note is that variable mortgage products are the most forgiving (you will typically pay a 3-month interest penalty), whereas fixed mortgage products at banks are the most outrageous. More often than not, you are required to pay the interest to maturity. Meaning, if you have 2 years left on your mortgage, you will pay the entire sum of interest for that entire period. The fine print here is that the charge will be calculated using the high mortgage rates posted on their website – not what is consistent with your product.
Sounds complicated? It is. All you need to remember is that it’s important to ask! Simply ask your broker or mortgage specialist what your penalty would be if you were to break your mortgage before the end of its term.
Oh! And this doesn’t include any cashback you received from the lender at the beginning of your transaction. That, too, must be paid back!
🔷 To your mortgage specialist or broker: How much commission will you make?
Why ask? Did you know that most mortgage rates are sold at a premium? Simply put, all brokers and bank mortgage specialists have wiggle room when it comes to the mortgage rates they decide to offer you. The banks (and other lenders) set a floor rate. Brokers and mortgage specialists can give away some, or all, of their commission in order to offer you that rate (this means less money in their pocket, but more money in yours). In order to offer you the absolute best rate, a broker is normally left with 0.4% to 0.6% of your total mortgage amount in commission.
🔷 (Quebec-only) If it is a referral from your real-estate agent: What’s in it for my real-estate agent?
Why ask? In 18% of cases, a lender is referred to by a real-estate agent; and in 33% of cases, a mortgage broker is referred to by a real-estate agent. For this referral, the real-estate agent may receive 0.5% of your mortgage amount as a kick-back.
As you are about to make the largest financial decision of your life, we think you deserve to know if the trusted recommendation you got is benefiting someone else financially. #transparency
🔷 If they offer to match our rate: why did you not offer me this rate from the beginning?
Why ask? You just spent a number of hours online, contacting Banks and Brokers trying to navigate this opaque mortgage process. Why did your Bank or Broker made you go through all of this?
FYI, this was one of the main reason why we decided to launch nesto. We don’t believe people should have to negotiate for their mortgage. We always offer our best options upfront. We would be curious to know why banks and brokers don’t do the same. 🤔
Any questions outstanding? Want a second opinion?