What To Look For In An “A” Mortgage Product?
Did you know that not all “A” products offered by major banks are the “ace products?” So if you’re looking for a mortgage getting one from schedule A lenders shouldn’t be your priority. After the introduction of B20 in 2011, and later the stress test rules in 2018, the mortgage industry has become more complicated than ever. A few years ago, we used to have straight-forward, limited options. But these days, even with the schedule A lenders such as charter banks, you might find various features or offers on the same product from different lenders.
To that end, at MassMortgageGroup.com, we make sure to educate our clients on their options. That way, they are aware of the full picture and can choose a mortgage that suits them best. From webinars and seminars, and blogs such as this one, to our bi-weekly educational videos, and our one-to-one consultation, we provide you with reliable information to help you make the right, educated decision. To help you even further, here are some of the features that you need to ask for before you sign off your “A” mortgage approval.
1. Look at your pre-payment options: As you may know, the majority of the mortgages in Canada are closed mortgages, meaning you are not able to pay out your mortgage balance before the end of the term or contract. If you want to pay out your mortgage, you have to pay penalties.
That said, most lenders allow you to pay a small portion of the mortgage without any penalty. But this option varies across different banks. Pre-payment options can be a significant tool in reducing your mortgage amortization and the total amount of interest you pay on your mortgage during its life.
The pre-payment options can be a lump-some payment between 10% to 20% of the original mortgage balance. Obviously, the higher, the better. On top of that, the lenders allow you to increase your monthly payment between 10% up to 100%.
2. Check your penalty calculation: As it is mentioned above, due to the fact that your mortgage is closed, you are not able to fully pay out your mortgage within the term of your mortgage. But life happens, and sometimes you have to break your mortgage for various reasons such as selling your property, refinancing for a better rate or doing an equity take out, etc. The majority of the lenders do allow you to break your contract, but it comes at a cost or so-called penalty.
Penalties get calculated by one of two methods. If you have a variable rate mortgage, it is very straight forward. They just charge you three months of interest for the penalty. However, the problem is when you have a fixed-rate mortgage. Then the penalty gets calculated using the Interest Rate Differential or so-called IRD.
To keep it simple for the purpose of this article, the IRD is the difference of your current rate and the rate should the bank want to take back your money and lend it to someone else for the remainder of the term of your contract. The catch here is how they calculate the differences between both terms. Some banks use the posted rate while others use the discounted rate. The latter makes for a much lower penalty.
3. Standard mortgage registration: When it comes to registering the mortgage on the title, the market again has two different approaches. They are standard or conventional charges vs. collateral charges. In the case of collateral charges, the amount of mortgage that is registered on the title is way higher than the actual amount. In fact, it can go up to 120% of the value of the property!
You might save some administration and legal fees if you want to increase the amount of your mortgage with your current lender, but collateral charges have a downside. Sometimes it locks the borrower in, and it does not allow the borrower to transfer their mortgage to another lender or even register a second mortgage behind it. So. try to look for a lender who registeres their mortgage with standard charges, meaning they register the actual amount of mortgage on the title.
Apart from the above three features, other minor ones worth asking about are:
- The low-cost Bridge Financing
- Any cashback incentive programs
- Any rebate towards the closing cost, appraisal, or inspection
- Special services such as home warranty, mobile legal services, online portals, etc.
When looking for a mortgage on your own, we recommend that you shop around for the best product in the market, and not blindly fall for your own bank’s offer. That being said, you should be ready to go through multiple lenders, and deal with many programs, large quantities of information, fine lines, and rules and regulations. If you ever feel overwhelmed, and this is a hectic process, you have a second option, which involves hiring a mortgage broker.
When you work with a mortgage broker, they do their best to find you mortgage products with the best lending terms and conditions. That way, you don’t need to waste time, energy, or money by going through several legal documents and meeting with different lenders.
Mortgage brokers have access to several lenders and various programs. They also know the market inside out, and they will cherry-pick the best products for your unique needs. As a result, consulting with a professional mortgage broker will defiantly put you in a better position financially. At the same time, you can enjoy a smooth and pleasant process at no additional cost or fee to you.
For a dedicated mortgage broker to help you with your residential and commercial mortgages in Ontario, reach out to MassMortgageGroup.com. We are a team of specialized mortgage brokers and agents. We are licensed and affiliated with Mortgage Intelligence, one of the biggest and most prestigious brokerages in Canada, with over $44 billion mortgage organizations annually partnered up with over fifty-five lenders, including major banks. Besides this, we have access to the most comprehensive programs that include but are not limited to the above-mentioned benefits and best features.