What to consider when doing an online Mortgage Comparison in Canada
How does one translate proper Mortgage Comparison? First and foremost, what is classified as a private mortgage? When one considers a private mortgage, what is the thought process? It has become such a broad term, that all mortgages that do not fit the “so-called good credit applicants” are now classified as private. Private Mortgages in Alberta and across Canada can be individuals, Capital Lending Corporations, Mortgage Investment Corporations (MICS), to name a few. Now remember, not everyone that obtains a private mortgage has bruised credit, in many cases it can simply be not adhering to lender policy that forces an individual or company to obtain a private mortgage. Now Back to “The Great Mortgage Comparison”…. Let me address the 4 keys basic things that are associated with a Private Mortgage.
Mortgage comparison questions to consider:
- Fast Approval?
- Open vs. Closed Mortgage?
- What are the Lender and Brokerage Fees?
- What is the rate and how is it determined?
Mortgage Comparison Factors
1.) Fast Approval – This does not necessarily mean the best approval. Generally when a private mortgage application or referral is sent to me, it can be determined very quickly from a broker standpoint if a fast approval is likely. For example, an applicant has a property in a major city, estimated value of $400,000, a mortgage balance of $150,000, and second mortgage for $65,000. This is essentially a net request for 54% LTV, plus fees. Big mistakes many applicants make are going with the fast approval. Granted, if time is of essence you take what you can get.
2.) Open Mortgage vs. Closed Mortgage – With respect to everyday mortgages, there are 3 general prepayments that most are aware of. The IRD (Interest Rate Differential) which is all over the map with all lenders, the common 3 month penalty and an Open Mortgage. When dealing with Private Mortgages; the latter of the two are generally usually used. The factors that should determine which route you take are, how long required for? The likelihood of the applicant pre-paying, and the pre-payment penalty as compared to the higher fees that is associated with an Open Mortgage. One must compare these things, but in many cases, it is very clear which option is best.
3.) Lender and Broker Fees – Private Mortgages differ than Non-Private Mortgages in the fact that they are higher risk. With non-private mortgages, the lender pays the brokerage a referral, not the client. When dealing with Private Mortgages, Fees are applicable from the Lender and/or Brokerage depending on lender. I have seen lender fees as little as $0, but I have also seen lender fees as high as 10% of the mortgage request. Brokerage Fees vary greatly too. Sometimes they are incorporated in the Lender Fee and Split, other times it is as small as 1%, or up to 10%. It is relative to the type of mortgage requested, the complexity of the file, etc.
4.) Rates – Not all private mortgages are created equal. The factors that determine the rate are as follows. Location, the Loan-to-Value (Equity), Type of Property, Lender. I am often asked “What is my interest rate going to be?” As a broker, I give the most honest answer based on the little information I may have, but ultimately having a completed application and compliance documents completed first will allow me to properly assess an applicant’s file. I have seen rates drop by a full percentage simply because an appraisal came lower than expected and therefore put the lender in a lower equity, higher risk position.
Not all private mortgages are created equal. An quick online mortgage comparison will help you find the right solution for you. Be smart, be quick, and Find a Broker that you can work with and be open with.