Closing on your mortgage is the culmination of a significant homeownership journey. As you approach this crucial milestone, here are six key insights to ensure a smooth and informed closing process:
1. Balance Sheet vs. Non-Balance Sheet Lender
In Canada, there are two sorts of lenders: balance sheet lenders and non-balance sheet lenders. A “Balance Sheet Lender” is any Canadian chartered bank. They are known as “balance sheet lenders” because they record your mortgage as an asset on their records.
These lenders can only enhance the value of your mortgage by expanding the disparity between their cost of funds and the interest rate you pay on it.
A “non-balance sheet lender” is a mortgage servicer who has the same motive as you: they want you to be and keep their client only on the basis of the rate.
Because your mortgage is guaranteed by the Canadian government, there is no way for the lender or servicer to raise your interest rate, and due to market efficiency, they cannot make more money by selling you a higher rate when you switch from a variable to a fixed rate mortgage or when you renegotiate your mortgage at maturity.
2. Variable Rate Mortgages are Great, Inflation is Nowhere to be Found!
Variable rate mortgages have historically been significantly and consistently lower than fixed rate mortgages. In reaction to the 2008 recession, the Canadian government decreased its prime lending rate in an effort to promote expenditure. Since 2008, interest rates have been at historically low levels. Although interest rates will climb and exceed current rates at some point in the future, this will take some time. The Bank of Canada recently stated that it has no plans to raise interest rates until the end of 2013. Here’s a link to a recent MacLeans piece on the subject.
3. Banks Are Not On Your Side
Chartered Banks in Canada have been recommending the public and potential clients to choose fixed rate mortgage products for the past two years, despite the fact that variable rate mortgages have consistently been at substantially lower rates. The reason for this is simple: banks offer their best rates to new clients and “reward” existing clients with uncompetitive rates due to the fines and trouble of transferring to a new lender, which they use as leverage to keep you around.
Working with a mortgage broker puts you in touch with someone who is on your side and striving to get you the finest mortgage package available. with a lender who rewards your loyalty by always providing you with the lowest interest rate
4. It Might Not Make Sense to Insure
Many Canadians must obtain mortgage insurance if they are unable to put down 20% of the purchase price of their property as required by the Canadian Mortgage and Housing Corporation (CMHC). The CMHC charges premiums that are applied to the loan value and range from 1.75% to 7.00%. These can be a big turnoff for a lot of home buyers, especially if they just plan on staying in the house for a year or two. If mortgage insurance does not make sense for you and your financing circumstances, we would be happy to discuss your options with you.
5. Making your Mortgage Tax Efficient
Tax-exempt mortgages are a terrific way to substantially reduce the payback time of a loan, but there are a few additional procedures that must be taken. In order for your mortgage to be tax effective, you must use a mortgage plan that includes a secured line of credit. We have considerable expertise setting up this type of mortgage for our clients and can walk you through the process step by step, as well as connect you with a team of mortgage and financial professionals to help you make all of your selections.
6. Pay Attention to Your Mortgage
Our mortgage professionals are committed to saving our clients money, which is why we continually monitor Prime lending rates and economist rate predictions. As a result, we may advise our clients on whether it is advantageous to switch mortgage products to obtain a better rate and product features, or to lock in a fixed rate if variable rates are no longer favorable. Our calculations are thorough and take into account the penalties for paying off your mortgage early. and many of our existing clients who want to refinance can save a significant amount of money.
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