Ravi Chandran
Seventy-two per cent of mortgage shoppers may get mortgage advice in person, a majority would opt for a fully online mortgage to save money.
By: Phoenix Lee/
The survey by Rates.ca showed that almost one in five mortgage shoppers say they’d be “happy to get a mortgage without talking to people on the phone or in person.” But, an additional 45 per cent would consider it, if it meant getting a lower interest rate. For this 45 per cent, the rate savings would have to be at least 0.05 to 0.20 percentage points to sway them away from lenders who employ in-person or phone advisors. (A rate that’s 0.20 percentage points lower saves you about $195 a year per $100,000 of mortgage.)
“Just as we saw with online stock brokerages a few decades ago, a growing segment of borrowers is willing to make their own mortgage decisions online without a banker’s advice,” said Rob McLister, Mortgage Editor at Rates.ca.
The survey showed that mortgage shoppers also care less about a lender’s brand name when a great rate is at stake. Fewer than one-quarter (23 per cent) say the lender brand is important when shopping for a mortgage.
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For most mortgage shoppers, getting the best rate surpasses all other considerations by a large margin. Three out of four (75 per cent) say getting a low rate is an important factor when choosing a mortgage, with 47 per cent of respondents citing it as their number one mortgage goal.
Interestingly, only 19 per cent said the lowest overall borrowing cost is their main goal, followed by 14 per cent citing clear communication of mortgage terms and conditions.
“The lowest total borrowing cost, which includes interest, fees and penalties, always matters more than the lowest rate,” said McLister. “But people continue to mistakenly associate the lowest rate with the greatest savings.”
Rates.ca recommends a four-step method to minimize borrowing costs:
- Research and get advice on the optimal mortgage term given your specific five-year plan.
- Compare the lowest rates for that term on a rate comparison website (pay attention to the fine print in the rate details).
- Call the lender or mortgage broker advertising the rate and ask them to outline all significant restrictions and features of the rate (including things like the prepayment penalty calculation method, the time you’re given to port the mortgage to a new property and whether you can borrow more money before maturity with no penalty).
- Pick the best overall value based on this research.
Mortgage shopping — whether it is for home purchase, or refinancing, or a home equity loan — is important. Remember, mortgage loan is a product, just like a car, so the price and terms may be negotiable. You’ll want to compare all the costs involved in obtaining a mortgage. Shopping, comparing, and negotiating may save you thousands of dollars.
Mortgage shopping is necessary as home loans are available from several types of lenders — commercial banks, cooperatives and finance houses. Different lenders may quote you different prices, so you should contact several lenders to make sure you’re getting the best price.
You can also get a home loan through a mortgage broker. Brokers arrange transactions rather than lending money directly; in other words, they find a lender for you. A broker’s access to several lenders can mean a wider selection of loan products and terms from which you can choose. Brokers will generally contact several lenders regarding your application, but they are not obligated to find the best deal for you unless they have contracted with you to act as your agent.
When you are mortgage shoppers, whether you are dealing with a lender or a broker may not always be clear.
Some financial institutions operate as both lenders and brokers. And most brokers’ advertisements do not use the word “broker.” Therefore, be sure to ask whether a broker is involved. This information is important because brokers are usually paid a fee for their services that may be separate from and in addition to the lender’s origination or other fees.
A broker’s compensation may be in the form of “points” paid at closing or as an add-on to your interest rate, or both. You should ask each broker you work with how he or she will be compensated so that you can compare the different fees. Be prepared to negotiate with the brokers as well as the lenders.
Be sure to get information about mortgages from several lenders or brokers. Know how much of a down payment you can afford, and find out all the costs involved in the loan. Knowing just the amount of the monthly payment or the interest rate is not enough. Ask for information about the same loan amount, loan term, and type of loan so that you can compare the information.
Mortgage shoppers have to be mindful that there is no harm in asking lenders or brokers if they can give better terms than the original ones they quoted or than those you have found elsewhere.
Once you are satisfied with the terms you have negotiated, you may want to obtain a written lock-in from the lender or broker. The lock-in should include the rate that you have agreed upon, the period the lock-in lasts, and the number of points to be paid. A fee may be charged for locking in the loan rate.
This fee may be refundable at closing. Lock-ins can protect you from rate increases while your loan is being processed; if rates fall, however, you could end up with a less-favorable rate. If that happens, try to negotiate a compromise with the lender or broker.
