So you’ve decided to go with a mortgage brokerage and all the advantages it has over a bank. Maybe you just read our article (link when the article is live) going into the differences between a mortgage broker and a bank. However, there’s still a question on your mind: other than interest rates, what’s the difference between all these mortgages? If they’re all the same, wouldn’t I just go with the one giving me the lowest interest rate?
Well, first of all, being able to look at a number of different lenders and pick the lowest rate you qualify for is one of the biggest benefits of going with a mortgage brokerage like Perch. With that being said, not all mortgages are the same. There are a few differences you might want to consider when making your decision. Before we get into that however, we want to remind you that when you work with us, we have dedicated mortgage advisors ready to help you select the right mortgage for your exact situation.
With that said, here are the factors that should help you decide which mortgage to pick.
Did this need to be said? Of course, one of the biggest factors in choosing your mortgage, as already mentioned, is the interest rate offered. When choosing the lender to get your mortgage from, you’ll want to calculate how much your monthly payments will be and how much interest you’ll be paying over the length of your term.
Depending on the mortgage lender you end up going with, there are a number of different fees you might have to pay when getting your mortgage. Some lenders may present all the fees together, while others may list them separately. These fees can include things like underwriting and application fees, but your mortgage advisor will let you know exactly what you’re getting into before you go through with the full mortgage application. If you’re switching your mortgage before the renewal date, you’ll have to pay mortgage penalty fees as well, which you can calculate using our mortgage penalty calculator.
Mortgage approval requirements
While this likely won’t come up as an issue when selecting your mortgage out of the offers you’re presented with, it plays a very big role in which lender you end up going with. Different lenders have stricter or looser guidelines for lending, which will affect your ability to access certain rates and loan amounts from that lender. Some, like alternative lenders, will have looser mortgage approval criteria but higher rates and other stipulations as a result. If you’re someone with a great credit score, high income, and a 20% or larger down payment, it’s likely you’ll be approved by the lenders that give the best rates and terms. If you’re curious what your income and credit score let you qualify for, sign-up today and you can browse offers and be pre-approved in as little as 20 minutes.
With each mortgage offer comes the term of the mortgage, which is the length of the mortgage agreement. Each lender will have different offers, which will vary not only in rates but also the length of the term. Maybe one lender will offer the best rate on a 5-year mortgage term, but you’re looking for a 3-year and so end up going with a different lender. If you know you’ll be selling in 3 years, you may choose to go for a shorter term. If you are someone who is risk averse, you could choose to pick a longer term, up to 10 years, in Canada. Keep in mind, if you pick a mortgage and later decide to break the mortgage early, you’ll need to factor in mortgage penalty fees. This comes into play if you choose to switch lenders or want to buy a new home and are planning on moving.
Fixed or variable
Mortgage type refers to whether your mortgage has fixed rate or variable rate interest.
What mortgage type you choose will depend heavily on your specific goals, and whether you believe rates will increase or decrease over the course of your term. Are you someone who craves certainty and shies away from risk? You’ll probably be going with a fixed rate over a variable rate in that case. You can talk to your mortgage advisor to find out what the best mortgage type will be for your goals.
It’s common, especially with high inflation and rising interest rates, for buyers to find that after purchasing their home they want to start paying more towards the equity of their property. Maybe you get a large raise 2 years into your 5 year mortgage term and want to start upping your monthly payments or making a lump sum payment. If this is a situation you could see yourself in then you’ll want to inquire about the pre-payment options provided by your mortgage lender. Lenders will usually have a limit to how much extra you can pay each year towards your equity, and you should check to see if there are any fees associated with pre-paying your mortgage.
If you still have questions about which lender to go with, you can speak with our dedicated mortgage advisors today to help you determine the best way to get you the mortgage you want. If you haven’t already, sign-up to Perch today, upload your documents, and get pre-approved.