This list was written in blood and sweat, and the knowledge behind it was learned the hard way by many loyal bank clients who’ve come to our office to try getting mortgage at the last minute. Unfortunately, these clients learned that there are many things that the bank won’t necessarily share with its clients. It’s important to remember that the banker sitting in front of you represents, first and foremost, the interests of his employer, the bank – and one of the bank’s primary interests is profit. Your interests as a client are, at best, second place. So what won’t your bank tell you at the crucial moment?
Of course, it’s not fair to expect your bank, which is, after all, working to win your business, will point you to their competition. But, at any given moment, the lowest mortgage rates and deals offered by different lending institutions are being updated. To get the best rate and the best deal, you need someone who is connected to all of the banks and lending institutions, and has access to all of the data and can see the overall picture, working for you. It’s important to know that your bank will likely be pushing a certain rate or package as their good deal – so while your bank might offer a great three year mortgage, their five year terms could be lousy, but someone else’s five year mortgage might be exactly what you need.
If you’re working with a bank officer who is excellent at his or her job, there’s a good chance that he or she will be promoted to a senior position in a different branch, and if not, he or she might well part ways with your particular bank. In either case, it’s far from ideal for you. You’re either in the hands of a less experienced bank employee, and the personnel will change, or you’ll keep the same banker – but that means that the bank chose not to promote him or her. What does that mean for you?
Banks are supervised in a different way; in most cases, they don’t demand their mortgage experts to go through the external licensing program, relying instead on their internal training. For you, this means that the person you’re counting on to be your mortgage expert might not have the knowledge and training that you would expect.
You have to ask yourself about your banker’s loyalty to you. You can avoid these mistakes – call me for a shopping training session.
Your mortgage will come with numerous conditions; however, if you don’t fulfill all of the conditions by the date of subject removal, you could lose your deposit on a house. You’ll probably feel calmer and more secure when the bank calls you to tell you that you’ve been approved for a mortgage; now you have the financing you need for the house you want. After you get that approval, you’ll have to provide the bank with some documents, but everything is under control, right? Not really. Your approval is still conditional; unless every condition, no matter how tiny, is met, the bank can withdraw the offer. For example: the bank calls your employer and learns that, yes, your annual income, as you said, is $67,000. But, in talking to your employer, the bank learns 20% of your income is bonus. The bank can now withdraw the mortgage offer. We’ve unfortunately seen many clients go through this, with the bank calling them to withdraw their mortgage offers, often over small mistakes in the application, and often after the client has already made a deposit on a property. Please call us to learn what you need to demand your bank do.
Instead, it’s a double-edged sword. If you wish to leave your mortgage before the end of the term, for example, to take advantage of a better offer, you’ll have to repay the “cash back.” There is no free lunch!
Canadians like to take mortgages for five years, but the average mortgage is only held for 3.7 years. This means that there is a good chance that you will pay a penalty of some kind. The way the penalty is calculated is key to your ability to save over the life the mortgage. Banks use the penalty to keep you with them; it’s surprising to see that they won’t share the way they calculate the penalty. It’s different from the two ways of calculating that are usually mentioned on bank websites. Call us before you conclude the deal with your bank, so we can calculate the penalty you’ll face if you break the mortgage.
A big bank will calculate the penalties so you will owe them $10,000 instead of the few thousand you would owe a credit union. There are two ways to calculate penalties, and the bank will choose the one that will earn them the most profit. In most cases, the penalty will be calculated using three interest rates, or by using the interest rate differential, which is the gap between the fixed rates calculated by the remaining terms. The big banks, however, often use a third method of calculating penalties, which they usually won’t share with you. You’ll find that for the same size loan at the same rate, an RBC client will sometimes face penalties that are eight times higher than a credit union client on the same street. The big bank take the posted rate on the same date that you got the mortgage, and will check what the discount you got from them was as compared to the posted rate. Then, they will calculate the penalty using those terms, which lets them impose sometimes unbelievable penalties of $40,000 or $50,000, thereby keeping you hostage for life.
Moreover, 30% of Canadians check “yes” on the renewal postcard that their bank sends them three month prior to the end of their mortgage, usually without even checking the terms! These terms are usually worse than those that the same client would get by going to the branch. Despite this, many Canadians will just check it off and send it back…
Although most borrowers in Canada prefer a five year contract, the life of the average mortgage is only 3.7 years, which means there is a good chance that you will pay penalties at some point. There are methods to decrease the penalties, but in order to do that, you must have flexibility. In particular, you need to have the flexibility to prepay on any day of the year, not just the anniversary of the mortgage. The limitation of prepayment to one day of the year can cost you thousands, if not ten thousand, dollars. Call us to see how we can help you pay less.
You met a nice bank officer, and he or she advised you to wait until you get permanent residence before you try to get a mortgage. It’s important to know that you don’t have to wait. Despite the bank’s beautiful building and nice lobby, and despite the suits and air of authority from the bank’s employees, most of these employees simply don’t know that there are plenty of mortgages available for people on work visas, with the lowest mortgage rates and terms available.
You are the one financing all the literature and the city centre branch rental – whom else would it be? Canadian banks bring in profits of a billion dollars a year. They will offer you everything in order to have you as a client using a package of their financial products that are most profitable to them. You have a good chance of getting much better terms for any given service, including credit cards, savings accounts, lines of credits, mortgages and other financial services if you shop around. Keeping all of your accounts with one institution weakens your negotiating position.
The bank will forget about you the day after your loan is finalized. Indeed, there’s a good chance that every interaction you have with your bank will be at your initiative, on the day Rinat and Jacob calls you to let you know that the market has changed and how you should prepare for it. In most cases, banks are not equipped in terms of human resources or expertise to give strategic service. It’s not reasonable to expect that you will receive follow-up on your mortgage or be contacted on an ongoing basis by the bank to try to improve your mortgage’s ability to serve your financial goals. Furthermore, their ability to help you is limited to the programs their bank offers. Only an independent expert can prepare you to deal with the market and make sure you’re poised to take advantage when a window of opportunity presents itself.
Our goal is to strategically manage your mortgage, maximizing your savings not just over the five year term, but over the twenty five to thirty year life of the loan. Every time a bank offers a promotion that affects you, or the market or your situation changes, we’ll invite you to check your options to save more money. Once each year, we’ll check in with you and see if your needs and priorities have changed, and if adjustments need to be made to your mortgage based on payment pressures, or changes in the rates in the market. Our aim is to prepare you for the rates change and adjust your payment according to the inflation rate, protecting you from unnecessary payment shock at the end of the term. Gradual adjustments will prepare you for the change in your monthly payment and cash flow.
When thinking about your mortgage, you need to think over its 25 – 30 year life, and not just the next five years. The consultant’s job is to enable you to quickly, cheaply, and efficiently transition from one mortgage to another, allowing you to take advantage of deals and promotions from various institutions. Your bank, on the other side, will try to put you in a mortgage that uses high penalties to limit your flexibility, trapping you with them. Another way to save with your mortgage will be through adjustment of your payments based on inflation. Adjusting your payments according to inflation will increase your equity and enable you to pay the mortgage off much faster, while also preparing you should rates resume their historical levels.