Experts best at brokering mortgage
Denise Deveau, Postmedia News · Mar. 30, 2011 |
Cheryl Hutton and Aaron Coates always thought getting a mortgage would be a challenge. But within 18 days of visiting a mortgage broker, they were able to close a deal on a new townhouse in Calgary without a hitch.
Now in their early thirties, both have careers in the theatre, something Ms. Hutton says has been a bit of a sticking point with banks. “In our industry we never fit the paperwork guidelines ‘for the banks.’ For some reason, people don’t think we pay our bills.”
Although it was their first home purchase, Ms. Hutton says it was surprising how easy the whole process was once they had someone who could walk them through it. “He sat us down, told us what our options were, showed us that it was possible and explained all the steps we needed to take. If it wasn’t for him, we may not have made the leap.”
Sorting through a mortgage process and negotiating rates can be overwhelming for first-time and seasoned home buyers alike. That’s why people such as Ms. Hutton and Mr. Coates turn to brokers to do the legwork for them.
Yet mortgage brokers will tell you that a good portion of home buyers out there don’t really understand what they do. “Part of the challenge we have in our world is that people aren’t really sure what a mortgage broker is,” says Gary Siegle, regional manager for Invis Inc., a mortgage brokerage firm in Calgary.
Brokers should not be confused with “rovers,” mortgage specialists attached to a specific financial institution who visit customers outside of banking hours, Mr. Siegle explains.
“They only deal with that bank’s product. A broker, however, is an intermediary whose job is to make a match between a lender and a borrower. We represent the individual, not the bank.”
About 30% of mortgages in Canada are done through a broker, according to Perry Quinton, vice-president, marketing, for Investor Education Fund, a Toronto-based non-profit financial information service.
“The reason more people don’t know about them is because the banks are so visible. It’s easy to gravitate to them when you have your savings accounts, credit cards and investments there already,” Ms. Quinton says.
Going for the comfort factor could cost you however, she adds. “A broker has access to different lenders including banks, and can shop rates and features. A half per-cent may not sound like much but that could make a difference of about $20,000 for a $250,000 mortgage amortized over 25 years. Any little bit helps.”
Mr. Siegle confirms that shopping around can deliver significant savings.
“Let’s take today’s average posted rate of 5.44%, and you get a point off that at your bank. So you think you just got a really great deal. But the vast majority of rates we deal with as brokers would be another 30 basis points lower -around 4.14%. And if you look at preferred deals that don’t offer features such as prepayment privileges, it can get as low as 3.89%. That’s another 25 basis points below what’s generally available.”
The reason for that is simple, he says. “We offer wholesale rates, banks offer retail.”
For anyone considering a broker, Ms. Quinton advises people to do a bit of groundwork first if they have the time.
“It helps to educate yourself about options and what you can afford. Look at all your living expenses, including student loans and credit card debt. Chances are you are understating those.”
Another thing to look into is the different types of available mortgages and features, including interest rates, payment frequency, amortization, cash-back programs and the ability to make lump sum payments.
“Knowing these things before you go in can save you a lot of money,” she adds.
Any mortgage broker you choose should always meet the right licensing and education requirements, so be sure to check their registration.
If you’re not completely prepared, however, that shouldn’t be a concern when working with a good mortgage broker, Mr. Siegle says.
“After all, mortgages are pretty much all we do. So even if you come in cold, good brokers will walk you through the process and ask all sorts of questions,” Mr. Siegle notes.
“You just need to be prepared to answer them openly and honestly so they can get you the best deal possible.”
Mortgage literacy crucial for first-time buyers
Vito Cupoli, Postmedia News · Mar. 30, 2011 | Last Updated: Mar. 30, 2011 4:04 AM ET
Two years ago, when Michelle Gompf and Jesse Bagelman started thinking about buying a house, they assumed it would be impossible to qualify for a mortgage because of some heavy debt and Mr. Bagelman’s status as a self-employed stone mason.
Rather than give up, Ms. Gompf -now Gompf Bagelman -launched a campaign. “I made up some little posters with a target date called Operation Jesse & Michelle Buy a House. I put them up where we couldn’t miss them -on our fridge, on the bedroom dresser, our laundry, office. I had them everywhere. I just wanted a house to be top of mind. We’re going to figure it out.”
A friend in real estate suggested she speak with a mortgage broker to see how close she was to qualifying for a first-time mortgage. “The broker really worked his magic, and next thing you know we were approved with a monthly payment that was less than the rent we were paying for our basement apartment,” she says.
She knew very little about the mortgage process initially, which is typical for first-time buyers, says mortgage broker Sandra Grywul.
“For the most part, the first-time homebuyer doesn’t know anything about financing a home,” says Ms. Grywul, owner of Always A Mortgage in Toronto.
“It’s funny, because buyers are thinking so much about what neighbourhood they want to live in, how many bedrooms, bathrooms, square footage. But they’re not thinking about what kind of mortgage they want to enter into.”
And buyers shopping for a mortgage have a lot of choices to sift through. Fixed term or open? Variable or fixed rate? Should they use their RRSPs for a down payment?
But Ms. Grywul says those decisions should be made after the buyers have tackled the most important element, which is to understand how much mortgage they can actually afford.
“The bank will look at your credit report but it won’t know if you like to spend $300 for a haircut or eat in an expensive restaurant each night.
“New homeowners go in, they get the mortgage that the bank says they can qualify for, and after two or three months into the house they’re calling around to see if they can do a consolidation or a refinance.
“The joy of their home has completely dissipated because they didn’t take into account all their monthly expenses when figuring out how much they could afford per month on their mortgage.
“I see this all the time. So as part of getting pre-approved for a mortgage, buyers need to be very honest with themselves about how much money they need to live happily,” Ms. Grywul says.
Toronto real estate agent Cameron Weir of Royal LePage, Johnston and Daniel has worked with a number of first-time home buyers.
He says it’s exciting to watch people go from being renters to owners. He says mortgage pre-approval is vital because it allows the buyer to be nimble in an active market.
“A lot of times today we find that there’s more than one offer in on a property. And if you don’t have everything set with a pre-approval, when your perfect property comes up you can’t close the deal without arranging financing first,” Mr. Weir says.
“While you’re working that out, a competitor who has already done his homework might make a firm offer at the same price and unfortunately you’ll probably lose that property.”
Mr. Weir describes the first-time buyer as “very excited, very nervous, lots of questions. It’s the biggest purchase they’re going to make, after all. But along with that, they’re also pretty cautious.”
Ms. Gompf Bagelman’s fear of high lawyer fees made her cautious. She was also concerned about having a stable and predictable monthly mortgage payment, so she chose a five-year mortgage and a fixed interest rate on the house she and her husband took possession of in February.
“With a variable rate I worried that I don’t have a lot of experience with these interest rates and anything could happen,” Ms. Gompf Bagelman says. “But the five-year term gives me security right now. So I have the current safety net and hope for something better when the five years are up.”
She also wondered if the recent mortgage crisis in the United States would complicate her home financing. And while that financial mess did foster changes in some Canadian mortgage regulations that take effect in April, Ms. Grywul says they don’t have any impact on the first-time buyer.
Instead, they focus on the refinancing business and on those who purchase second homes or investment property.
In considering all the details and requirements of financing a home, Mr. Weir says, “the most important thing is to find the right place, at the right price at the right time.”