Mistake 1: Not having your documents ready
One of your mortgage broker’s primary functions is to provide lenders with paperwork confirming your income, assets, source of down payment and overall reliability as a borrower. Without complete and accurate documentation, no reputable lender will be able to process your loan.
But “borrowers often don't have these documents on hand,” says John Vo of Spicer Vo Mortgages in Halifax, Nova Scotia. “And even when they do provide these documents, they may not be the correct documentation required."
Some of the most frequent mistakes Vo sees when borrowers send in their paperwork include:
- Not including a name or other relevant details on key pieces of information.
- Providing old bank or pay statements instead of those dated within the last 30 days.
- Sending only a partial document package. If a lender asks for six pages to support your loan, don’t send two. If you're asked for four months’ worth of bank statements, don’t provide only one.
- Thinking low-quality or blurry files sent by email or text will be good enough. Lenders need to be able to read what you send them.
If you send your broker an incomplete documents package, the result is inevitable: Your mortgage application will be delayed as long as it takes for you to find the required materials, and your house shopping could be sidetracked for months.
Mistake 2: Blinded by the rate
Ask any mortgage broker and they’ll tell you that the question they’re asked most frequently is: “What’s your lowest rate?”
The interest rate you’ll pay on your mortgage is a massive consideration, so comparing the rates lenders are offering is a good habit once you’ve slipped on your house-hunter hat.
Rates have been on the rise lately given government actions to stimulate the Canadian economy. You may want to lock a low rate now, so you can hold onto it for up to 120 days.
But Chris Kolinski, broker at Saskatoon, Saskatchewan-based iSask Mortgages, says too many borrowers get obsessed with finding the lowest rate and ignore the other aspects of a mortgage that can greatly impact its overall cost.
“I always ask my clients ‘Do you want to get the best rate, or do you want to save the most money?’ because those two things are not always synonymous," Kolinski says. "That opens a conversation about needs and wants."
Many of the rock-bottom interest rates on offer from Canadian lenders can be hard to qualify for, come with limited features, or cost borrowers “a ton” of money if they break their terms, Kolinski points out.
Mistake 3: Not reading the fine print
Dalia Barsoum of Streetwise Mortgages in Woodbridge, Ontario, shares a universal message: “Read the fine print. Understand what you’re signing up for."
Most borrowers don’t expect they'll ever break their mortgages, but data collected by TD Bank shows that 7 in 10 homeowners move on from their properties earlier than they expect.
It's critical to understand your loan’s prepayment privileges and the rules around an early departure. “If you exit the mortgage, how much are you going to pay? It’s really, really important,” Barsoum says.
She has seen too borrowers come to her hoping to refinance a mortgage they received from a private or specialty lender, only to find that what they were attempting was impossible.
“Some of their products are actually fully closed. Even though it’s called a 'variable mortgage,' it’s a fully closed product. Regardless of whether you want to pay the penalty or not, you cannot exit that loan," Barsoum says.
Some agreements include provisions that don’t allow borrowers to leave their mortgages until the property is sold to an unrelated third-party.
Mistake 4: Not seeing the bigger picture
Your mortgage can be a ship that sails you into the pristine waters of financial security, or an anchor that drags your family’s finances underwater and turns them into shark food.
Understanding the relationship between your mortgage and your overall economic situation is a key step in the mortgage process, and one that Fair Mortgage Solutions' Graeme Moss says too many Canadians are willing to skip.
When deciding which mortgage will fit their finances, Moss says borrowers often rely on a single calculation — Can I make my payments every month? — without considering their overall financial picture.
“We measure their debt-to-income ratio both now and where it will be at various points in the life of the loan,” Moss says.
Having a similar strategic chat with your broker can help illustrate how a mortgage will interact with your other debts and financial commitments over the life of your loan, which can prevent you from overextending yourself.
It’s also a powerful tool for planning multiple exit strategies in case your personal situation changes unexpectedly before your mortgage term expires. “Everyone has issues,” Moss says, “so you need to have a plan A, B or C.”
Mistake 5: Rushing in too quickly
With Canadian real estate still on fire and setting more records in 2021, you can be forgiven for feeling pressured to find and finance your first — or next — home. Properties vanish from the MLS, or multiple listing service, within days of being listed, so time really is of the essence.
But let’s be real: No matter how sizzling the market gets, rushing into a mortgage is often a terrible idea.
Your mortgage will dictate the strength of your personal finances for decades. The small details you skip over during the mortgage process can result in you paying way more for your mortgage than you need to, or missing out on a property you have your eye on.
Let’s prevent that. You may want to start by checking your credit score to make sure it's strong enough to secure a good rate. If not, you need to pay down some debt and take other steps to lift your score to where it needs to be.
If you’re a first-time homebuyer who just wants to get in and out of the market as quickly as possible, you may not think you need someone to lay out a long-term game plan for you.
Moss disagrees: "Getting an unbiased snapshot of what you can do is invaluable," he says.
When you're looking for a broker, ask questions about how a mortgage will impact your overall financial health. That can be a way of sussing out whether a real estate professional is worthy of your trust.