Personal Finance

Mortgage brokers can lend a money-saving hand.
By Gail Bebee | 14/07/11

Not so long ago, getting a mortgage to buy a new home was a fairly simple process. You went to the local bank or credit union where you held your chequing account, met with the loans officer and filled in an application. If your mortgage was approved, you got the posted interest rate.

About the Author
Gail Bebee is an independent personal finance speaker, teacher and the author of No Hype--The Straight Goods on Investing Your Money. She can be reached at gbebee@gailbebee.com; her website is www.gailbebee.com.

Fortunately, for consumers, the mortgage market has changed for the better. Today, buyers seeking financing for a home have more choice, both in the number of institutions with mortgage money to lend, and in the mortgage features and terms.

With so many options available, home buyers seeking financing for a first home, as well as those facing renewal of an existing mortgage, should do some research before committing to what is likely to be the biggest loan of their lifetime.

To begin your mortgage research, you'll need to assemble some details on your financial situation:

1. Your gross monthly income

2. Your monthly costs for housing (such as mortgage payments, property taxes, heating expenses and condominium fees)

3. Your total monthly debt load (housing costs plus car loans, credit-card and line-of-credit payments and any other debts)

4. For new purchasers, your planned down payment

5. If you are renewing a mortgage, the estimated value of your home and the size of the mortgage you are seeking

Mortgage lenders will use this data to determine how much money you can afford to borrow. You can estimate the maximum size of the mortgage you are likely to qualify for by using the tools in the Buying a Home section of the website of Canada's national housing agency, Canada Mortgage and Housing Corp. (CMHC). The CMHC site has a wealth of other useful information on home buying and ownership.

The next step in your research is to become familiar with current mortgage interest rates. The Money Centre page at www.fiscalagents.com lists the latest mortgage rates for more than 30 financial institutions from across Canada. Another good website for comparing mortgage rates is www.ratesupermarket.ca. It offers a calculator that lets you enter specific details such as mortgage value, amortization period and your location, and then spits out the best current rates. Consider these rates as a guide only; the best rate available to you will depend on your particular circumstances.

Armed with the above information, you can begin mortgage shopping in earnest. Given the complexity of the modern mortgage business, I think enlisting the services of an independent mortgage broker is the way to go. Mortgage brokers shop the market on your behalf to find the most advantageous mortgage for your personal situation. They have access to dozens of lenders from banks to trust companies to private lenders, and can arrange mortgages at much lower rates than those offered at your local bank.

One day last week, for instance, www.ratesupermarket.ca reported that the best posted rate for a five-year closed mortgage from any of the major Canadian banks was 5.39%. (Mortgage specials with lower rates may be available from time to time at some banks.) For the same terms, the best rate on offer from a mortgage broker was 3.39%. On a $200,000 mortgage amortized over 25 years, that's $221 less to pay every month ($1,208 vs. $987) and more than $66,000 in interest saved over the life of the mortgage.

Mortgage brokers can be particularly valuable in arranging financing for borrowers such as the self-employed who would be turned away by the major banks due to unacceptable credit risk. Best of all, the services of a mortgage broker are usually free, since they are paid by mortgage lenders for successful referrals.

As with choosing any financial professional, pick a mortgage broker with care. Check the relevant government body in your province to make sure the broker is properly licensed and not the subject of any enforcement activities. A Google search of "mortgage broker licensing [name of your province]" should churn out the appropriate agency name.

For example, in British Columbia the Financial Institutions Commission (FICOM) is responsible for mortgage-broker licensing. FICOM's website lists B.C.-registered mortgage brokers and posts enforcement activities for non-compliance with the province's Mortgage Brokers Act.

You may want to hire a mortgage broker holding the accredited mortgage professional (AMP) designation. First conferred in 2004, this designation is held by brokers who meet certain professional standards and agree to follow a code of ethics. You can locate an AMP in your area by using the search feature at the AMP website.

While paper qualifications are one thing, I believe a face-to-face meeting with a mortgage broker or one of the broker's licensed mortgage agents is essential before hiring her. This is the time to discuss the broker's experience and professionalism, gauge the personality fit and assess the ability to properly represent you to potential mortgage lenders.

This is also the time to ask any questions you might have on such things as mortgage-discharge fees, the process for switching lenders, how to use your RRSP for a down payment and the merits of a fixed-rate versus variable-rate mortgage.

After you have chosen a broker, the next step is to complete a mortgage application that covers basic personal information, your financial situation and home-financing goals. The broker will then prepare a mortgage proposal and present it to the lender whom he believes offers the best combination of product features, level of service and interest rate for your needs.

Once the broker gets the lender's letter of commitment to the mortgage, you sign the approval to proceed with the mortgage. According to mortgage agent Lawrence Goldenstein, a good broker will handle all the required paperwork and deal with the lender's mortgage department. In most cases, you just show up at your lawyer's office to sign the final mortgage documents.

Shopping for home financing by using a mortgage broker will save you time and potentially thousands of dollars. A broker may be able to find financing that you could not secure on your own. Plus, you'll get to enjoy the pleasures of a mortgage-free lifestyle sooner. When it comes to home financing, it pays to be a discerning consumer.

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