My goal has always been to educate the home owner with mortgage tips, options, products and market information. Over the years a number of mortgage myths have surfaced and I’m going to address a few of them here.
Myth #1: Minimum down payment rules. Every time Finance Minister Jim Flaherty changed the mortgage rules over the past few years a wave of the same questions kept coming up. “Don’t you need 10% or 20% down payment to purchase a home?”
This is not true; the minimum down payment to purchase a home in Canada is still only 5%. Lenders have a way of getting around the rule with the cash back program which is still available through provincially regulated lenders like ATB. Cash back, simply put, is the lender provides the down payment to the client upon closing to the lawyers and charge a higher interest rate for it. The rules for refinancing are different though and that’s likely where the confusion has come from, as you need 20% equity to be able to refinance and again these rules don’t apply to renewing your mortgage at maturity.
Myth #2. My bank will automatically give me the best mortgage rate. Banks know that many people won’t shop around for their interest rate, and banks make higher profits when charging higher interest rates. Banks typically offer what is called the ‘posted interest rate’ first, which are much higher than the fully discounted rates mortgage brokers are able to offer up. If a client has done their homework, then most banks will fold like cheap tents and offer a competitive rate, but not usually on the first go around.
Myth #3. A pre-approval guarantees a loan. A pre-approval means different things to different mortgage brokers and bankers have their own interpretation as well. A pre-approval means that, I’ve likely reviewed your credit, income and down payment and forwarded it to a couple of lenders for a ‘pre-approval’ and rate hold. The lender provides me with a written commitment confirming that they are willing to move forward as well, as long as everything in the submitted application matches the documents we provide at a later date. However, if anything doesn’t match, then this could jeopardize the pre-approval. In addition to that, if your mortgage is requiring mortgage insurance, then that means CMHC or their competitors may have access to some information that neither you nor I were privy to. I typically pull only one credit bureau which is Equifax (unless there’s something showing up that would entail me to pull a Transunion), and the mortgage insurers pull both automatically up front. Also, if anything happened in between the time we arranged your pre-approval, such as late payments, collections and judgements or even new loans, these too could threaten to harm your approval possibilities. It’s always a good idea when making an offer to ensure that a financing condition is listed on your offer to purchase a home.
Myth #4. The lowest interest rate mortgage is the best for me. Not all mortgages are created equal. The lowest rate mortgage may mean you give up some other privileges that paying 10 or 20 basis points more at another lender may be beneficial. For example the lowest rate lender may be tying you up with less flexibility with regards to prepayment privileges and higher penalties should you want to break the contract. It’s best to look at what’s also below the surface with regards to your mortgage offering.
The best advice I can provide is to not believe everything you hear and do a little homework on what it is you are getting into. There are always options, while some will be great, others maybe not so much.
Jean-Guy Turcotte is an Accredited Mortgage Professional with Dominion Lending Centres-Regional Mortgage Group and can be contacted for further information or appointments at the following: 403-343-1125 or jturcotte@regionalmortgage.ca.
