Did you know: two in three Canadians are signing over thousands of dollars in contracts they don’t fully understand? It sounds foolhardy – but that’s the reality in Canada’s mortgage market, according to Scotiabank’s annual mortgage poll. The survey found just 33 per cent of home buyers said they read their entire mortgage agreement – and of those, only 27 per cent really understood the fine print.
And, Canadians’ lack of mortgage comprehension goes beyond the contract; 84 per cent stated that a competitive interest rate was their greatest motivation when picking a mortgage, overlooking completely other mortgage features and restrictions.
It’s a skewed way to look at a major decision like buying a home, says Janet Boyle, vice president of real estate secured lending at Scotiabank.
“It’s amazing, we’ll often spend much more time on smaller purchases doing research and comparing pricing or looking online for reviews,” she says. “This is an incredibly important purchase – probably the biggest lots of us will ever make – in our lifetime and you want to make sure that you put the time in and set (yourself) up for success.”
This rate-focused approach isn’t lost on mortgage lenders, who have gone above and beyond with their pricing this season, just to stay competitive – but may be sacrificing other features in order to provide that rock-bottom rate. Said Spin Mortgage Co-Founder Steve Pipkey to the Canadian Press, “Lenders are stripping away features of mortgages to get their rates lower.”
Why Buyers Should Look Beyond the Rate
Boyle says buyers should view mortgage rates as a hook; lenders want to capture your attention as you’re thinking about the process. “It’s the invitation that gets them to come in and meet with a financial advisor,” she says, adding that once they get involved in the discussion, they can go deeper into the specifics of the mortgage that’ll be the best fit for them. “You’re going to get customers that are going to get themselves into the wrong product if they’re not engaged in a conversation with a financial advisor to say ‘here’s what my plans look like’.”
But the real first step, she says, is figuring out how much mortgage you can afford.
“There’s nothing more disappointing then getting out there in the market and realizing you’ve become very involved in the process but you haven’t done that important step,” she says. Getting a pre-approval for a mortgage will give you the confidence to negotiate and get in the game if you find your dream home. She says once you know how much you can afford, that’s when you start to hash out the elements – like the flexibility to repay the mortgage at any time without penalty, which 63 per cent of Canadians said was important, and prepayment privileges without penalty, which 60 per cent said was important.
“Just being able to make two payments a month really can shorten that amortization,” adds Boyle. Even making one or two additional payments a year to a mortgage can shaves thousands of dollars off what you pay in the long run.
Look To Your Five-Year Plan
You may also want a portable mortgage, especially if you hope to move within the next few years and want to take your mortgage with you. Talking over these elements with an advisor will help you find the best value while getting the features you need.
Boyle says that’s why homebuyers should build a team around them, after all, homeownership doesn’t stop once the keys are handed over.
“You need good people around you, not just your financial advisor – you need a great real estate agent that you really connect with who understand all the things you’re looking for,” she says. Then there’s the lawyer, someone you can trust who will make sure all is in order before the transaction closes. “(Home inspectors are also very crucial, because you want to make sure that it’s a really solid property you’re buying into,” she says.
Also read: The Perfect Pro – Your Guide to Working With Mortgage Professionals
Ultimately, having a good team, knowing what you can afford, the features you are looking for in a mortgage and getting pre-approved will make the experience more enjoyable. “Right out of the gate, that will dramatically reduces the stress levels,” she says. “It just creates a much better experience going in so that you can really look at houses with a great deal of excitement.”