The largest financial transaction of your life is far too important to place into the hands of someone who does not have your Best Interest in mind. But how can you tell?
Here are the TEN Most Important Factors to consider and Questions to ask.
1. What are mortgage interest rates based on?
The only correct answer is the Bank of Canada rate for variable mortgages and mortgage backed securities,specialized mortgage bonds, or Government of Canada Long Bonds for fixed rates. A professional Mortgage Broker or a Banker ought to at least know the basics of how your interest rate is determined. Do not work with a Mortgage Broker or Banker who has their eyes on the wrong indicators, or worse yet, has no idea what the indicators even are.
2. Where does your Company Rank in Canada in terms of Strength and Access to Solutions?
Verico Paragon Lionsview Mortgage Group Inc. falls under the Verico Umbrella. Verico is part of M3 that is a conglomerate of 6,000+ brokers & $44 billion in annual mortgage volumes. M3 is the Undisputed #1 Non-Bank mortgage originator leader in Canada http://bit.ly/2OMlyyu
3. Do you require an Exclusive Application or can I apply via another Broker or Bank too?
Any reputable Mortgage Broker will ask for exclusive rights for 10 business days from the submission of a full application to find the best available options. If a client is not willing to grant the exclusive rights to the Mortgage Broker for a specific number of business days, she / he will decline to take the assignment as there is no commitment from the borrower. If a Mortgage Broker is willing to work for you without exclusive rights, you should consider it a Major Red Flag and start running for the exit.
4. My bank gave me a rate 0.20% lower rate than yours which is the best deal. Myth!!!
Most consumers identify as best offer the one with the lowest interest rate. Let us look at it. On a $400,000 mortgage with a 25-year amortization RBC can give you a rate of 3.18% and I can provide a rate of 3.38%. Your savings over 5 years are $1,285.59 on the mortgage. RBC and any bank offers you this rate for 3 reasons. First, to retain you as a client. Second, to sell you Investment and Insurance products at a cost higher than what the market bears that will triple and quadruple their profits despite the $1,285.59 discount they gave you. Third, and most important, to eliminate competition(See Mortgage Brokers) and increase interest rates in the long run. The more you use Mortgage Brokers the better the market gets in terms of Equilibrium as Mortgage Brokers strive to secure the best overall offer in terms of Rate, Prepayment Privileges, Mortgage Portability, Payout Penalties etc. By the way, the Smith Manoeuvre strategy that follows will save you much more annually than a 0.20% interest rate reduction. Furthermore, if you factor in that Banks charge much higher payout penalties(See below), offer lower Prepayment privileges(See below) and never send you a Monthly Real Estate Update to stay in touch you will realize that the Value a Mortgage Broker brings is 2-5 times higher financially than what a Bank provides. In absolute numbers, the value of the Mortgage Broker can be quantified to a minimum Net Gain of at least $3,000 under this specific $400,000 scenario if the preceding strategies/features are utilized by a consumer. Furthermore, Banks exercise discretionary pricing and charge uninformed consumers higher rates per the following Bank of Canada Research https://bit.ly/2xswaMe
5. Do you provide a Monthly Real Estate Update?
This is a very important feature as market research will help you stay informed of changing market conditions that affect property values and a decision to buy or to sell. Most mortgage companies provide a Generic Monthly Update and most Big Banks no updates at all or updates that offer no insight on current Market Trends. I personally prepare the Real Estate Update and the content reflects current market conditions. The information of the Update can make a huge difference in the way you understand the market and also in the way you make decisions. It is sent on the 15th monthly. Here is a sample from September 15 2018: https://bit.ly/2xrPvgx
Verico Paragon Lionsview Mortgages Inc. – Suite 511, 938 Howe Street, Vancouver, BC V6Z 1N9
Tel: 778-859-7195 Fax: 604-648-8514 – E-mail: firstname.lastname@example.org – W: www.yiannisandreou.com
6. Are payout Penalties the same between a Bank and a Monoline Lender?
If you ask an employee at the Bank(RBC, TD, BMO, CIBC, ScotiaBank) whether a payout penalty between them and a Monoline Lender like Merix or First National are the same, you should receive a transparent answer. If the employee of the Bank or a Mortgage Broker tells you that they are very close or identical , you should start running for the exit and an example will explain why. Let us assume a 5-year Mortgage with a balance of $300,000, a rate of 2.5% and 36 months left to maturity. The penalties per the link that follows at the end are the following if it was to be paid today in full: a) RBC $7,713.39, b) BMO $11,438.68, c) CIBC $11,250, d)Scotia $11,250, e) TD $11,250, f) MCAP $5,400, g) First National $4,112.37. The link can be found here to trace all the calculations https://bit.ly/2MUaXUs.
It is safe to say that it pays not to get a mortgage from a Bank as your penalty will be huge in the event you have to sell for any reason and break the current mortgage term.
7. Do All Lenders Offer the Same Prepayment Privileges?
This is an area where there is big differences. Some Banks allow a pre-payment monthly, others twice or 3 times a year while others only annually. Some Monoline Lenders like Merix and CMLS allow payments on a monthly basis up to 20% of the mortgage balance annually. Most banks offer annual prepayment privileges between 10-15% depending on the mortgage selected.
8. Have you been advised to Implement the Smith Manoeuvre?
The Smith Manoeuvre allows you to convert mortgage interest from non-deductible to deductible for tax purposes as long as you use a Re-advanceable Line of Credit exclusively for it. This is a strategy that will help you increase your Net Worth much faster. If you have never been advised to use it while you qualify does the lender have your best interest in mind? You can review the benefits here: http://www.yiannisandreou.com/financing-solutions/
9. Are Broker Fees explained on your Website?
Very few companies offer a high level of transparency on the way fees are determined. The best firms will be fully transparent with their fee structure and will ideally have this information on their website to further support their character and integrity. The link that follows explains fees in detail and can be found here: http://www.yiannisandreou.com/mortgage-broker-compensation/
10. What is the difference between a Mortgage Broker and a Mortgage Specialist?
A Mortgage Specialist is employed by the Bank(RBC, TD, BMO) and has access to 5-8 mortgage products the Bank has. A Mortgage Broker has access to 200+ Prime, B and Private Lenders and at least 1,600 different products assuming 8 per lender. Furthermore, a Mortgage Specialist of a Bank is not licensed. Mortgage Brokers have to pass a Comprehensive Provincial Examination to be licensed and are re-licensed by FICOM that is the Regulatory Authority in BC every 2 years: https://www.fic.gov.bc.ca/web_listings/SBList.aspx?EntityId=06d83b9091d73b3be35cd2beab46972a