The standard mortgage options that our parents used are very different from what most of us use today. Years ago, a house was purchased with a 25 year term mortgage at very low fixed interest rates. There were no mortgage brokers or agents because there was no need for them. Things have changed considerably since then.
Most mortgages today are for a 3 to 5 year term. The qualifying rules are always changing and it keeps getting harder to qualify for a mortgage. This is especially true for first time home buyers, self-employed individuals and retirees who are living on a limited pension.
But the biggest change by far was the introduction of the collateral mortgage
Standard Mortgage or Conventional Mortgage
The standard mortgage (conventional mortgage) that was offered to our parents is no longer being offered by many banks in Canada. Contrary to what many people think, mortgages are not all the same.
Some major banks in Canada only offer collateral mortgages and most banks register collateral mortgages at 100% to 125% of the total value of the property regardless of the amount being borrowed. By doing it this way, the lender ties up all your present equity and much of any future equity you could build up over time. It’s a way to capture your business and make it hard for you to explore other financing options.
Mortgage Brokers Can Provide A Standard Mortgage
A mortgage broker can provide you with a standard mortgage that is registered only for the amount you borrowed (the conventional mortgage). Another reason you might want to stay clear of collateral mortgages is that they are typically registered at prime plus 10%.
If you get sick or injured and fall in arrears, the lender can raise your interest rate by up to 10%, forcing you to sell your home. With a standard mortgage your interest rate cannot be increased for any reason during the term of the mortgage.
Many lending institutions also tie all your loans and credit cards together when using collateral mortgages. Unsuspecting consumers who happen to miss even a few credit card payments because of being laid off or being ill could trigger the rate increase mentioned in the last section.
For a free referral to a mortgage broker call 800-722-7172 or Email Marianne Now!
Benefits Of Using A Mortgage Broker
- No cost to you for standard mortgages – lenders pay mortgage brokers
- Brokers can provide you with a conventional mortgage – the regular mortgage most people think they’re getting
- Brokers do the negotiating
- Independent, objective advice – they don’t represent just one lender
- More lenders to choose from – good brokers have access to dozens of different lenders
- One-stop shopping
- Ongoing support