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With multiple companies, interest rates, and options to look over, finding the best lender for your specific needs can appear overwhelming. However, mortgage brokers and specialists have the tools and knowledge at their fingertips to help borrowers make informed decisions about their home financing.
To tell us more about what to look for when choosing a mortgage lender, we recruited the advice of Carrie Cardinal from Realtyone Real Estate Services Inc. and Ryan Mollberg with M Realty, both of whom are Saskatchewan-based mortgage brokers and REALTORS®.
Types of mortgage lenders and how a broker can help
Mortgage lenders in Canada can be organized into three main categories:
- A lenders encompass traditional lenders such as banks and credit unions suited for borrowers with good credit scores and steady incomes.
- B lenders offer a lower barrier for borrowers who may not qualify through an A lender due to lacklustre credit history or unpredictable income.
- Private lenders fall outside of the regulated sector and tend to have lower qualification rates compared to A and B lenders.
Mollberg explains while banks and other major financial institutions are considered to be A lenders, monoline lenders also fall under this category. Unlike banks who offer multiple services like credit cards, investments and bank accounts, monoline lenders specialize primarily in mortgage loans.
“Banks have a bank status,” explained Mollberg. “They’ll do primarily A-business, but then what makes mortgage brokers as successful as we are is options other than banks, and there are these lenders we call monoline lenders, meaning they just do one thing and that’s mortgages.”
When looking for recommendations on A, B, or private lenders, Mollberg and Cardinal point to mortgage brokers as a good starting point. With access to dozens of mortgage lenders, brokers can help borrowers compare and one-stop shop for the best mortgage free of charge. Cardinal explains mortgage shoppers can also compare terms and interest rates between lenders easily online.
“That’s where, [for] a lot of the research, people can do a lot of online, but in my opinion, finding someone who has unbiased advice to a certain lender is where you’re going to get as much information as possible,” she said.
What questions to ask your mortgage specialist or lender
During those first few conversations with your mortgage broker or bank, you’ll want to ask questions about your payments, property taxes, and mortgage portability options.
The early stages of finding a mortgage involves figuring out how much you can realistically afford with REALTOR.ca’s mortgage calculators, a pre-approval process, which assesses your credit history, employment, and down payment to determine how big of a mortgage loan you qualify for. Mollberg explains each lender is different and will have its own set of mortgage policies, but a broker can help borrowers understand these guidelines and determine which lender will suit their individual circumstances.
“This is again another challenge, and this is where having a mortgage broker is good because they can help navigate those waters and say ‘Okay, well, you’re buying in small-town Saskatchewan, you’re self-employed, your down payment is coming from your parents, and you’ve only been at your job for nine months. What lender will do that for you?’” said Mollberg.
“That’s what a mortgage broker does. They’ll help sift that out for you and figure out where to place the mortgage,” he added.
During those initial meetings with your mortgage broker, Mollberg said it’s important to ask what lenders they may have in mind for you. This also includes asking your broker the differences between bank and monoline lenders. For example, prepayment privileges—an additional sum you can make on top of your regular mortgage payments—are often one of the biggest differences between the two.
Cardinal explains borrowers may also want to ask about extra payments on your mortgage and how many you’re entitled to per year, the mortgage renewal process, and if your lender allows property taxes to be collected with your mortgage. Portability is another crucial factor to talk about when discussing mortgages, Cardinal said, as you’ll want to know if it’s possible to transport your mortgage in the event that you need to move houses.
You’ll also want to confirm the cost of any penalties for paying out your mortgage early, which may impact the length of the mortgage term—the period and interest rate.
“If you have to pay it out early for whatever circumstance, what are you going to be looking at as far as a penalty?” said Cardinal.
“Because the interest rate differential penalties right now are really, really high, it’s important you know what you’re getting into and not over commit on a term. I often say to my clients, ‘Rather than committing for five years, if you’re unsure, maybe just doing two or three years may be better for you,’” she added.
When it comes to lenders, consider more than just your rate
It’s easy to just think about numbers when shopping for a mortgage lender, but customer service and communication are essential to consider too.
“Customer service is key,” said Cardinal. “When you have a problem, you want to be able to reach someone and get the problem resolved.”
Mollberg explains it’s important for lenders to have a good online customer portal. This is where clients can make payments, gather mortgage statements, and get other detailed information. Cardinal said a borrower should find a representative easy to access. A common frustration among her clients is calling an 800-number and not being able to get to the person they need.
When it comes to buying and selling real estate, REALTORS® and mortgage brokers often work alongside one another to get borrowers into the home they want.
“As a REALTOR®, setting up with a good mortgage lender is key because having a fully qualified buyer is the way we’re able to make dreams come true,” said Cardinal. “At the end of the day, if somebody isn’t qualified, they cannot sell a house, they cannot buy a house, and that ends up being a really difficult process.”
If you’re looking for recommendations on a mortgage specialist or are new to the home buying process, consult the help of a local REALTOR® for guidance at every step of the way.