Common Mistakes People Make When Getting A Mortgage

Today, buying a house can be much easier than before, with the abundance of
financial options available through a Mortgage Broker. Although Banks do not, Mortgage Brokers do offer a variety of financial products to suit a broad range of homebuyer’s needs. However, without a thorough understanding of what these mortgages entail, you could deplete your finances quickly.

That’s right! What you don’t know can hurt your wealth in the long term when it comes to choosing a mortgage. For this reason, it is essential to ask questions when you approach a bank or mortgage broker and thoroughly understand their terms and conditions. If you skip these steps, you could end up trapped by your mortgage contract and face huge financial penalties or a foreclosure.

To help you avoid some basic errors that could lead to these unfortunate outcomes, Keith Uthe Demystifying Mortgages has put together a list of the most common mistakes people make when getting a mortgage.

1. Not asking what the prepayment penalties are for the mortgage
Borrowers generally intend to complete the five-year mortgage term, but statistics show that 40% of people break the term of their mortgage. If that mortgage is with one of the big banks, the penalty will be thousands or tens of thousands of dollars. For this reason, be sure to ask about prepayment penalties or, better yet, use a mortgage broker who has access to multiple lenders without these huge penalties.

2. Not asking if the mortgage will be a collateral charge.
There have been news reports on W5 showing that banks fail to disclose this critical information to borrowers. Unfortunately, many borrowers are unaware of the implications of having a collateral charge, and as a result, do not ask about it.

Borrowers need to realize that banks use a collateral mortgage for three reasons:

a. To secure 100-125% of the property value.
b. To restrict you from securing other financing against your home.
c. In case of a missed payment or drastic change in credit, they can foreclose immediately as it is a ‘Demand Loan,’ not a mortgage.

By using a mortgage broker, you can avoid bank collateral mortgages as many lenders still have standard mortgages through the broker channel.

3. Not asking what the prepayment privileges are.
Sometimes, borrowers can get so tied up in a special rate that they forget to see what has been taken away from them to get that low rate. Some banks will reduce the prepayment privileges down to a 10% increase in payment and 10% lump sum annually as opposed to a standard 20/20 or 20/25 offer. By working with a mortgage broker, borrowers can gain access to a variety of lenders with better prepayment options.

4. Accepting the lowest rates without asking about the conditions.
Borrowers often get hung up on wanting the lowest interest without understanding what they are giving up for that low rate. Like most special offers, there is usually a catch, and borrowers need to ask what the conditions of the special rate are. If they don’t, they could be locking into a mortgage that has a bonafide sale clause to a third party or no portability, no skip a payment option, no limited prepayment options, etc. By working with a mortgage broker, borrowers can ensure they have access to a variety of lending options that offer better terms.

5. Obtaining a single pre-approval.
Most borrowers do not realize that they can get more than one pre-approval or mortgage approval and then decide which one to choose. Instead, they believe that the bank, their family, or friend can give them the best rate and terms, but this may not always be the case, which is why borrowers should get a second opinion. Similarly, a borrower may love their bank. However, it is essential to remember the bank advisor is there to make money for the bank and not represent the client. When borrowers use a mortgage broker, they become a client of the broker, who then represents them to multiple lenders. At the same time, there may be a better rate available with mortgage brokers as they facilitate higher mortgage volumes and get rate discounts, which smaller brokerages don’t have access to.

6. Sticking to one lender to avoid multiple credit checks.
Borrowers believe that too many credit checks for a mortgage will hurt their credit badly. This used to be the case, but it isn’t anymore if a mortgage broker is used. If a borrower talks to three of four mortgage lenders (through the same mortgage broker) in forty-five days, the credit agencies do not penalize clients for this. As a result, using a mortgage broker one can prevent negative impacts to their credit scores as they can use the same credit bureau with multiple lenders.

To avoid similar mistakes while looking for a mortgage, reach out to Keith Uthe Demystifying Mortgages. I am an independent mortgage broker and specialist in Calgary, Alberta, in association with The Mortgage Alliance Enrich Mortgage Group. I am passionate about helping people fulfill their dream of homeownership and living a life of abundance. As a licensed broker, I help my clients find mortgage solutions that ensure financial security and peace of mind. Unlike a bank agent, I represent your needs to different lenders to find you the best terms for your mortgage.

For a complete list of my services, please click here. If you have any questions about mortgages, I’d love to hear from you. Please contact me here.