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7 Things To Know When Seeking A Suitable Mortgage
Contrary to what bankers and brokers want you to believe, you actually do not need expert advice or in-depth information to avoid mortgage mistakes.
After all, you are the one who is making the final decision by determining what is most suitable for you.
The biggest mistake you can make is actually delegating that responsibility to someone else who have conflicting interest to yours.
Here are 7 things to guide you through the process.
1) Owning a home cost more money than the mortgage, taxes, and insurance combined
It is amazing how home buyers look at the price of a house, then calculate the mortgage and closing costs, and determines that costs of ownership by adding them up.
There are so many more costs items that has to be taken into account.
These costs items when added up will make the interest on your mortgage look like dessert.
Renovation, maintenance, repairs, utilities, upgrades, furniture, fittings, appliances, are just some of the costs that you will run into over the years.
2) Just because a lender offers you full leverage does not mean that you should take it
Remember that lenders are business entities that are profit driven.
They have their own systems and assessment criteria to determine how much they are willing to loan to you.
In some instances, they might be so comfortable with your profile that they are willing to fully finance your property.
The bigger the loan, the bigger the interest charges. But just because that is so, does not mean that you should conveniently take it up.
You have to determine your own costs if maintaining your lifestyle to avoid being a slave to your home.
3) Things can happen which you have absolutely no control over
You really can’t predict with certainty what can happen to the economy.
Another huge crisis could happen and you could get retrenched.
Maybe that might not happen to you. But it could happen to you spouse as well, taking out half your household income.
This can put your repayments in danger of default. When that happens, it could get pretty hot below the collar.
Always have a backup contingency plan in mind should adversity strike.
4) It’s not all about interest rates
Of course, the lower the better for interest rates. But seldom does a loan package stand out in the market that is clearly better than the rest in every way.
For example, you could be relocating in 2 years. This will have a material impact on your decision on the type of mortgage most suitable for you.
You will want one that has no prepayment penalties.
Many other personal situations can make many different loan structures attractive to you.
So spend some time going over your personal circumstances and decide on a structure most suited for you.
5) You are the ultimate decision maker
Every banker will say that they have the best rates in the market.
Every broker will say that they are second to none. And every cousin will tell you they just secured the best mortgage in town.
It is not possible that there are so many best loans around.
While many people will try to help by offering tips and referrals via their contacts, remember that you are making your own decision.
You are the one signing off the agreement and the repayment will go through your personal account. If you feel uncomfortable with a deal, just say no. You have the authority to do so.
6) Rejection is not final
If you fail to obtain the mortgage that you require, that does not mean that the game is over for you.
A lender rejecting your application does not mean that all other lenders will do the same.
Even if all lenders turn you away now, it does not mean that they will do the same in the future.
Make a mental note to improve your credit score and try again in a few months.
7) Banker or broker?
A mortgage banker is an employee of the bank, credit union, or typically any financial institution that issues home loans.
The bank issues loans to purchase or refinance properties.
If you happen to walk into a bank, you will notice that there are different rooms that cater to different types of products.
Some bankers are specialists in personal credit, others on auto loans, those on mortgages, etc. The one that attends to your request is the mortgage banker.
Most lenders also have a specialists department where the only bankers assigned to these departments are experts on a specific product.
So do not be surprised if you somehow get linked up with a banker that only does mortgages.
It’s not that they are not experienced enough to handle other credit facilities. It’s just that they are specifically trained on 1 product only.
If a lender is purely a home loan player, you can expect their bankers to all be specialists.
A competitive edge that big well known banks have over others is a trust that is built with consumers over a long period of time.
This is why a lot of people take up their mortgages with their personal banks even though the interest rates might be higher than what others are offering in the industry.
But as we have all learned during the subprime crisis, lenders can lend you the money to buy a house, and in turn sell your mortgage to others.
This can be done because every loan is essentially the same. It is money.
Brokers are basically agents that tie up borrowers to lenders.
Established mortgage brokers can expect to have links to almost any lender you can think of.
When you go to a banker, you will be advised on the bank’s terms.
But with a broker, you will be advised with terms of all available lenders. And they often transact on a wholesale basis to enjoy cheaper rates. Which do you think serves your needs better?
You might then ask: “Why do lenders work with mortgage brokers then?”.
It is the same reason auto loan lenders get car dealers to sell their loans, contractors to sell renovation loans, private schools to sell education loans, etc.
They are a part of the supply chain. And it will be more cost efficient to work with them rather than against them.
It is important to take note that brokers do not issue the loans.
They don’t come up with their own inventory. They are simply match makers who help home buyers and owners make sense of aggregated interest rates data.
They might help out with processing an application for a lender. But they have no final authority on approvals and deviated interest rates.
Which is better?
It really depends on your own comfort level. Some brokers do not look or dress the part when compared to bankers.
This often creates a less than impressive impression that makes clients uncomfortable to work with. And while bankers will have brands that we have known of since young, many brokerages will probably have brands that you have never heard of.
Brokers also add an additional layer to the whole process.
So the only real benefit of engaging brokers is the competitive interest rates they bring to the table. If price is not an issue with you and you rather go for peace of mind. Go with the banker.