IN FOCUS: Canadian Mortgage Environment

Why the banks are not always an investor’s best option

Mar 29, 2017

As the mortgage landscape continues to change, more Canadian real estate investors are enlisting the services of a mortgage broker. And who can blame them? Mortgage brokers give investors the ability to choose from multiple options and are often more nimble and flexible than the banks. Brokers have the ability to access various lenders and rates, while the banks are restricted to their own products.

“The banks can also be a lot more selective with their clientele,” says Shawn Stillman, Director, Principal Broker at Sigmamortgage.ca. “The new mortgage rules have caused a lot of competitors to leave the market and because of that, the banks are the only game in town. Therefore, they’re able to be more selective in terms of what they take on their books.”

If an investor walks into bank in search of financing, in no circumstances is the bank’s mortgage advisor ever going to recommend the investors goes down the street to a competitor who has a better rate or more suitable mortgage product. That is one of the fundamental differences between independent brokers and banks. “By searching the entire market’s range of products, brokers have a better chance of finding the best rate for their client,” Stillman says. “If the broker doesn’t find something suitable or attractive right away, they can continue shopping until they get the solution that best meets the investor’s needs.”

Although rates are the obvious differentiator between mortgages, Stillman believes that savvy investors should be considering some other important factors:

  • Breaking the mortgage: “No one plans on breaking their mortgage yet around half of first time home buyers break their mortgage after three-and-a-half years,” Stillman says. “Therefore, figuring out how to get out of the mortgage should be investigated at the outset. Lenders may have exactly the same rates, but different penalties for exiting the mortgage.”

 

  • Prepayment privileges. Using lump sums or savings is an effective way of paying down chunks of a mortgage, although certain lenders penalize investors differently for doing so. Be sure to check this out before entering into an agreement.

 

  • Customer service. Although bank lenders have branches where you can go and talk to someone, most non-bank lenders have modern websites, which means an investor doesn’t need to speak to anyone directly. “Some banks have call centres outside of Canada and regardless of how educated that person is, there is definitely going to be a disconnect,” Stillman says.

Ultimately, brokers have the potential to find the right lender with the right product for each real estate investor. “Brokers can also step in if something goes wrong with the mortgage,” Stillman says. “The investor has an advocate by their side throughout the life of the mortgage.”

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