The mortgage process can seem huge and overwhelming. It can be an emotional process because a mortgage is the loan you are taking to buy a home for yourself and your family which makes it infinitely more than just a loan. Or it may represent the loan you are taking to refinance your home to invest in business dreams or to clean up some debts after life has thrown you sideways.

Likely you will head out to get your loan and, if you are human, are probably nervous about the whole process and whether you will even be approved. The new guidelines brought into place by the federal government have made it harder and you may even feel that you deserve a medal by the end of the process after jumping through all the hoops. The other part of the process is that we are inundated with information and we want to make sure that we are choosing the best mortgage that will protect us now and in the future. The easiest measure of mortgage ‘victory ‘seems to be the interest rate we are offered. What rate did you get is a hot topic after a home is purchased and it seems a no brainer that the one with the lowest rate is the clear cut winner in that conversation, but it is time to challenge that assumption and to do so we are going to look at just two normal situations. The fact of the matter is that you need to look beyond rate. Of course it is important as the lower the rate, the lower your payment but at the end of the day there is more to it than rate.

The Case of the Mortgage Penalty

Client is a regular person. Good credit, saved up the down payment and is ready to purchase a home. Receives two offers for the mortgage both at the best rate of the day. Chooses option A through her home bank as she likes the ‘security’ of bricks and mortar locations. Fast forward to down the road and sadly the client is separating and needs to payout the mortgage. Had she thought to ask she would have known that the penalty is calculated very differently from lender to lender and she would have saved herself thousands; this information is readily available online and asking questions before signing is the way to go.

The Case of the Self Employed

Client is a hard working tradesman guy who has saved 15% to put down on a home but needs to state his income given that he cannot verify it traditionally. Option A takes him to a mainstream lender who has to go through the mortgage insurer. Option B takes him to a B lender who will not through the insurer but charges a higher rate and a fee.

Let’s assume a mortgage amount of $250,000

Lender A – Rate is 2.79% for a 2 year term and the mortgage insurance fee is 3.75%

Lender B- Rate is 4.89% and the lender fee is 1%

It seems simple until you realize that the difference between the two fees is $7,235 and even though he will pay a higher amount monthly, he will actually owe $3,000.57 less at the end of the term as he borrowed less overall. So there was no so called victory in achieving the lowest rate but the client did in fact save himself a lot of money.

The point is that your mortgage is made up of far more than a rate and the onus is on you to make sure you are getting the best mortgage overall even if you lose the water cooler bragging rights. As you can see in just two examples, there is a lot of money that can be saved. Be sure to contact your local Dominion Lending Centres mortgage professional who can help you find the right mortgage for you.

Contact me to discuss the right mortgage for you at 416-318-7200

Authored by Pam Pikkert, DLC Regional Mortgage Group

We are all familiar with the banks and local credit unions, but what are monoline lenders and why are they in the market?

Mono, meaning alone, single or one, these lenders simply provide a single yet refined service: to fulfill mortgage financing as requested. Banks and credit unions, on the other hand, offer an array of other products and services as well as mortgages.

The monoline lenders do not cross-sell you on chequing/savings account, RRSPs, RESPs, GICs or anything else. They don’t even have these products and services available.

Monolines are very reputable, and many have been around for decades. In fact, Canada’s second-largest mortgage lender through the broker channel is a monoline lender. Many of the monoline lenders source their funds from the big banks in Canada, as these banks are looking to diversify their portfolios and they ultimately seek to make money for their shareholders through alternative channels.

Monolines are sometimes referred to as security-backed investment lenders. All monolines secure their mortgages with back-end mortgage insurance provided by one of the three insurers in Canada.

Monoline lenders can only be accessed by mortgage brokers at the time of origination, refinance or renewal. Upon servicing the mortgage, you cannot by find them next to the gas station or at the local strip mall near your favorite coffee shop. Again, the mortgage can only be secured through a licensed mortgage broker, but once the loan completes you simply picking up your smartphone to call or send them an email with any servicing questions. There are no locations to walk into. This saves on overhead which in turn saves you money.

The major difference between a bank and monoline is the exit penalty structure for fixed mortgages. With a monoline lender the exit penalty is far lower. That is because the banks and monoline lenders calculate the Interest Rate Differential (IRD) penalty differently. The banks utilize a calculation called the posted-rate IRD and the monolines use an IRD calculation called unpublished rate.

In Canada, 60% (or 6 out of every 10) households break their existing 5-year fixed term at the 38 months. This leaves an average 22 months’ penalty against the outstanding balance. With the average mortgage in BC being $300,000, the penalty would amount to approximately $14,000 from a bank. The very same mortgage with a monoline lender would be $2,600. So, in this case the monoline exit penalty is $11,400 less.

Once clients hear about this difference, many are happy to get a mortgage from a company they have never heard of. But some clients want to stick with their existing bank or credit union to exercise their established relationship or to start fostering a new one. Some borrowers just elect to go with a different lender for diversification purposes. (This brings up a whole other topic of collateral charge mortgages, one that I will venture into with another blog post.)

There is a time and a place for banks, credit unions and monoline lenders. I am a prime example. I have recently switched from a large national monoline to a bank, simply for access to a different mortgage product for long-term planning purposes.

An independent mortgage broker can educate you about the many options offered by banks and credit unions vs monolines.

Contact me at 416-318-7200 to discuss your options today!

Authored by Michael Hallett, DLC Producers West Financial