Many people start their home-buying journey by perusing local real estate listings –trying to spot a home that best suits their needs. Yet this approach can be fraught with challenges, says Paul Taylor, president and CEO of Mortgage Professionals Canada, the national mortgage industry association whose members include mortgage brokers, mortgage lenders, mortgage insurers and industry service providers.
“When you have your heart set on a home that you like and assume you can afford, finding out later that it’s out of your price range can be painful,” he explains. “Before you talk to a realtor, you should sit down with a mortgage broker to determine what kind of property and budget are realistic for your situation.”
Due to a number of regulatory changes that have come into effect over the last two years, Canadians may overestimate their borrowing power, says Mr. Taylor. All mortgage qualifications are now subject to interest rate stress tests. When deciding whether borrowers can afford their monthly mortgage payments, lenders are now generally required to use an inflated interest rate – not the rate the contract will actually be issued at, he explains. “For example, if your credit history suggests you are eligible for a 3.5 per cent interest rate for a five-year fixed term, qualifying will require you to demonstrate you can manage payments at a 5.5 per cent interest rate.”
This effectively means people can borrow less, Mr. Taylor stresses. Changes to mortgage insurance eligibility may also mean that, in some markets, the lowest interest rates are not available.
Yet regardless of the potential homebuyer’s situation, everyone can benefit from talking to a mortgage broker, says Mr. Taylor. Since brokers have relationships with many different lenders, such as mortgage banks, private sources and independent lenders, they have access to a wide range of products.
“It’s a one-stop-shop type of approach,” Mr. Taylor says. “In a few conversations, a broker can get a sense of your lifestyle, how you generate your income, and what your requirements are. With this information, brokers can look at the marketplace to find something that best suits your borrowing needs.”
While much of a mortgage discussion typically revolves around interest rates, there are other important considerations, according to Mr. Taylor. “What are the chances that you have to move for work or make lifestyle changes in the near future? What happens if you have to deal with an unexpected life event? These are some of the questions to keep in mind when you look at the terms of your mortgage,” he says. “The products with the lowest interest rates are often also the most inflexible – and making adjustments or changing terms can be expensive.
“When you are solely focused on interest rates, this could end up costing you more in the long term,” Mr. Taylor says. “That’s why it is important to talk to someone who can explain product subtleties.”
Since mortgage brokers are independent, they are able to weigh the benefits of different products – such as interest rates, cancellation or early repayment penalties, whether or not the mortgage is portable, and different options for payment schedules and amortization length – against the needs of the consumer.
Mortgage brokers help homebuyers make informed decisions – they can also lend support when dealing with changes, says Mr. Taylor. “If you need to renegotiate your mortgage terms, change your payment structure or make any sort of adjustment, it’s good to have someone on your side who has a relationship with the lender and can help with renegotiations.”
When selecting a broker, Mr. Taylor recommends checking whether he or she belongs to a professional association like Mortgage Professionals Canada – an indication that the broker maintains a high level of professionalism and keeps up with the latest offerings and developments within the industry (please see mortgageproscan.ca/findabroker for a broker in your area).
“A broker works for the consumer, and this independence is critical for getting the appropriate advice,” says Mr. Taylor, who adds that brokers also provide services for commercial lending. “Rules for financing an investment property, for example, are quite different from those for owner-occupied places. For any type of property financing needs, a broker really should be your first call.”
This content was produced by Randall Anthony Communications. The Globe’s editorial department was not involved in its creation.