A mortgage broker is an independent agent, an intermediary between you the consumer and the mortgage lender. The mortgage broker will shop the available lenders to find the mortgage product that offers the best combination of features, options, and rates to suit your individual circumstances. Depending on your credit picture, typically there is no charge to the consumer for the service. The mortgage consultant’s fee is normally paid by the lender.
The appeal of a mortgage broker lies in the opportunity to effectively search a large segment of the mortgage industry for the optimum terms, rather than negotiate personally with only one or a few lenders. As a result, the popularity of mortgage brokers is growing.
A mortgage broker can also be a source of information and an unbiased help in wading through the myriad of options available in the mortgage industry today. Wondering about the advantages of refinancing? Want more information on the Home Buyers Plan? How about advice on adjustable term mortgages? Having problems getting a mortgage because you’re self-employed? Or maybe you need special help arranging financing for an investment property. These are the kinds of issues a mortgage broker can help with, and usually at no cost to the buyer.
Term is the difference between the start and maturity date of the mortgage. You can choose terms of just 6 months, 1, 2, 3, 4, 5, 7, 10 or even a 25-year term. At the end of the term you can either pay off your mortgage, or renew with the same lender or another lender at terms of your choice.
The amortization period is the number of years it takes to repay your mortgage in full. Often when you first get a mortgage it is amortized over 25 years. This means that if you maintained those terms and payment periods, your mortgage would be paid off in 25 years. However, in most cases the amortization period changes because different borrowing terms, interest rates and payments against the principal amount at each renewal vary the length of time required to pay off the mortgage. For example, going with a shorter amortization period – say 15 years for example – will result in higher payments per period, but save you money in interest by enabling you to retire your mortgage sooner.
Fixed rate means that the rate of interest charged for the term of your mortgage is a set amount and does not change over the term of your mortgage. A variable rate mortgage is one in which the rate of interest will fluctuate in accordance with a bank trend setting rate. This is typically the bank prime rate. Adjusted on a predetermined basis, usually monthly, the rate can be set below, equal to or above the trend setting rate and will move up and down accordingly with that rate. A drop in interest rates will mean that more of your mortgage payment will go towards reducing your mortgage principle. If interest rates rise then less money will be used for reducing your principle and will instead be taken up in the higher interest costs. Usually fixed rate mortgages will cost you more since the lender is unprotected from the possibility of future interest rate increases. You generally pay less for a variable rate mortgage because it is you that is taking the risk of uncertainty as to how interest rates will move – up or down.
Most variable mortgages give you the right to switch to a fixed rate at any time, with no charge. If you think the interest rate rise is a long-term trend then you would exercise the option and switch to a fixed rate.
The purpose of a pre-approval is to confirm in writing the maximum amount of money that you can rely on for mortgage purposes. When interest rates are fluctuating, it’s an advantage to know what your borrowing limit is before you start house hunting. With a pre-approval, a lender will guarantee you for a specific mortgage amount for a period of time. If the mortgage interest rate drops before the lender advances the funds for a mortgage, you are given the lower rate. If the rates rise, you are given the rate at the time you had the mortgage pre-approved.
Mortgage Brokerage services are not provided through Hatch & Muir and are done on a referral basis only.
References to third party goods or services available on our website or through the links provided should not be regarded as an endorsement of those goods or services. Any opinion or advice expressed in a linked site should not be construed as the opinion or advice of Hatch Muir Financial Group.
Robin Muir, CFP®, CLU®, CH.F.C.