Choosing a lender for your new home mortgage
By Andrei Zaretski - New Dream Homes and Condos Magazine
The excitement of a new home and the dread of a new mortgage often go hand in hand, leaving some buyers in a state of confusion.
Before plunging into a loan, it is important to research and determine not only the right mortgage, but also the proper lender.
Szilard Kolozsvari, mortgage specialist for Mortgage Financial Corporation and former account manager for RBC Royal Bank, explained that choosing between a bank, a private lender, and a builder’s preferred lender varies on a case by case basis.
“Advantages of the private mortgage are basic,” he said. “Sometimes it’s easier to get it, but you’re going to be paying higher rates. And it should be, in most cases, your last resort because the best way to go is the cheapest way.”
However, private lenders are convenient because there are not as many rules and regulations when it comes to borrowing privately. A private mortgage will not be reviewed as thoroughly as a mortgage with a bank, although the interest rates are higher because of the risk the lender is taking.
“Anybody can be a private lender,” Kolozsvari said. “You need to have money, you need somebody who needs money, and you need a lawyer and a mortgage broker to set it up.
“They are risking their money the same way as a bank would be risking the money, but it’s an individual person instead of a whole corporation. And that’s why they charge higher rates.”
He recommends working with a mortgage broker, or going to a bank before looking anywhere else. If the bank turns down the application then a private loan is the only option if the borrower is set on purchasing the home.
In most cases, however, it is difficult to find a private lender, so a mortgage broker is recommended to find that person and negotiate a contract.
“You should always use a mortgage broker or a mortgage specialist,” Kolozsvari said. Sometimes, a builder will recommend someone called a builder’s preferred lender. They will usually give the borrower approximately one per cent off the set interest rate. That rate is usually held for up to about three years, so when the building is complete and it is time to take the mortgage, the rate is still the same.
Depending on what interest rates do over the follow few years, you could win or you could lose. The builder gets that rate held for you, but if market changes, the rates changes as well. The borrower, however, is not obligated to stay with the builder’s preferred lender and can switch to a different lender that provides a better rate.
“Your builder’s preferred is a good way to go when you are buying something that is building in the future,” Kolozsvari explained. “But right before your mortgage is ready and your building is registered, you want to check to make sure that your rate is still the best. So that’s when you go either to your institution or your mortgage broker and just tell them ‘this is the rate that I have held for me, can you do anything better?’”
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