Once in a while someone has already said exactly what you want to say. Which is the case today. I’m borrowing with gratitude a fantastic post by Better Borrower, regarding What to Look For in a Mortgage Specialist.
“What makes a good mortgage specialist, how do you find one, and why is it so important?
Personal referral, either from a realtor, bank branch staff, or family and friends is a good place to start, but this connection is just the start. There are thousands of mobile mortgage specialists and independent mortgage brokers out there. The industry has seen an incredible boom over the past ten years and there is always lots of movement from bank-to-bank and company-to-company. Add to this that buying a home is the biggest investment (and obligation) most Canadians ever take on, and the whole thing moves to another level. Whether a broker or banker, there are key elements to what a mortgage specialist should do that puts some of them far above the rest. Here’s how we look at a specialist and what they should be doing for you:
1. Rates aren’t everything. Getting a mortgage, refinancing your home or consolidating debts should not be seen as a quick and easy task. There are some brokers and bankers out there that make borrowing all about rate, and the truth is, it is about a whole lot more. Any specialist who speaks to you for three minutes and guarantees you a mortgage without seeing documentation or credit history is putting you at risk. Personal lending has changed and continues to change, with stricter documentation, tighter lending policies, and tougher credit requirements than ever before. Any banker or broker that focuses on rates without ensuring you know about every option available is preying on ignorance and inexperience. Nobody can guarantee you will be approved for a mortgage without seeing your full financial picture. That’s why it is so important to look at financing BEFORE you buy, and why you need to work with someone who is worried about you and not rates. The other reason rates aren’t everything is because, when you crunch the numbers, you realize that for every 0.05% of interest rate difference, you pay about $3.00 on 100k of mortgage. That means that on a $300,000 mortgage, 0.05% is worth $9 a month, or $108/year. Is it worth getting bad (or no) advice, or being tied into unfair and restrictive repayment or payout conditions simply because a rate is marginally smaller? The answer, of course, is no – the money you can save through pre-payment, debt management, and other efforts that a good mortgage specialist would talk to you about will make up for the rate difference tens or hundreds of times over. Rate is important – you shouldn’t pay more than you have to if you can find a similar rate elsewhere – but make sure you get the benefit of a full consultation as well.
2. Experience matters. Someone who is new to the world of home and personal finance may be smart, fully versed in policy and products, and able to offer you a seemingly great rate, but do they have the experience of working with a client in your situation, with your needs and your financial goals and challenges? Every client is different, and the more clients a mortgage specialist has worked with the better. Try to find someone that was worked on a wide variety of deals in a wide variety of situations – clean offers and conditional ones, salaried and self employed, good credit and bad. Has the specialist had to work through someone’s debts in order to make a deal viable? Are they familiar with the area you’re buying or living in and some of the appraisal challenges that may come up? Do they know what to do when a deal goes sour, or will they freeze? Have they gotten a decline and been able to turn it around? You may be able to discern this from whomever referred the specialist to you, but having exposure to and experience with lots of good and bad deals makes a big difference in their ability to guide you through the process and find a solution tailored to your needs. There are so many products and programs available – and there have been so many changes to products and policies over the past several years – that experience matters now more than ever.
3. Big picture thinking. Your mortgage or credit card or car loan is only one piece of your larger personal financial picture. A good mortgage specialist should take the time to find out about your short- and long-term financial and personal goals and needs. Is this a starter home or a long-term buy? Are you planning on starting a family, which can lead to bigger space requirements and a maternity leave cash crunch? Are you trying to save money for your kids’ education? Do you have insurance or a health plan, or a parent that may need care? How long have you been in your job, and how strong are your prospects there? Do you have savings for emergency contingencies as well as a down payment? Why do you have two cars, or separate savings accounts, or a concern with shorter terms? It’s important to know not just what you want to borrow, but why you want to borrow it. Big picture thinking allows a specialist to get a better sense of your risk tolerance and financial plan, and keeps the mortgage or loan in a proper context. If a mortgage specialist does NOT look at your broader financial picture, they don’t have the perspective or knowledge to make an informed recommendation on a product, term, rate or solution to your borrowing needs.
4. More than an order taker. Every individual who sells mortgages has incentives. Some may be volume based, i.e. the more dollars they lend out, the more they make; others may be rate or product based, i.e. selling a five year term earns them the best commission. Regardless of how they make their money, however, a good mortgage specialist will set you up with the rate, product, term and conditions that work for YOU, not them. A good mortgage specialist knows that a happy, comfortable, satisfied customer will be a repeat one and will refer new customers down the road, and even if they make a bit less on your deal they’ll more than make up for it down the road. Spending time is hard – it costs money, opportunity, and effort – but a good mortgage specialist will make the effort. In our opinion there’s no point in working with a “yes man” (or yes woman) who simply puts you into the product that is getting the most press without determining whether that product suits your financial needs. Just because a deal is easy doesn’t mean it’s right, for you, for your finances, and for your family’s long-term happiness. If a mortgage specialist is focused on only one product, or simply puts you into a five year rate without asking about your broader plan, walk away. Either that specialist is focused solely on getting the deal done and moving on, or does not have the experience or professionalism to walk you through the proper process. The truth is, even if that particular rate or product is the right one, you should have a much better sense of other options and the long term implications of your contract than is being presented in this scenario. A great example has been the record-low mortgages recently available which featured restrictive conditions and could have actually cost more long-term – without understanding every aspect of the product, you are at risk of being locked into something that may not suit you.
5. Shopping is overrated. The idea that you can get lenders to compete for your business and squeeze out a bit lower rate is a popular one that has gotten completely out of hand in our world of online resources and 24/7 lending. Mortgages in Canada are financed primarily by the big banks, either directly through their branch or mobile mortgage sales staff, or else indirectly through their broker channel funding arms. 95% of the time every bank and broker will end up offering the same rate for the same product. Special rate offers can and do exist, but usually have specific requirements – quick closings, shorter amortizations, higher down payments, limited repayment options and smaller lenders – that make them inappropriate for some borrowers or ineligible for others. In mortgages, as in all things, if it’s too good to be true, it probably is, and signing up for that mortgage could saddle you with requirements that could cost you down the road. It’s a far better use of your time to work over your larger financial picture with one specialist, than it is to call up five of them so you can “shop” for a low rate that may not even suit what you hope to achieve!
The bottom line: In our experience, the borrowers who do best – who pay the least, who achieve their financial goals, who keep themselves in the best possible financial situation while still owning the home or car or investments they strive for – are not those who “shop for rates” or “get a great deal”, but are those who find and work with a mortgage specialist that takes the time and makes the effort to understand their financial situation and develop, with them, a broader financial plan. They may pay a higher interest rate, or borrow a bit more money, or take a shorter term, but they work out a financial solution to their borrowing needs. Their mortgage isn’t a deal, it’s part of a larger and ongoing financial effort to live their lives comfortably but realistically, making sure that other needs and obligations – vacations, healthcare, emergency savings, education, food, clothes, even taking care of loved ones – are considered and balanced with their mortgage or loan requirements. Our opinion: try to find a specialist that recognizes the importance of this balance, start working with them as early in the financing or home buying process as possible, and you will be much better for it both now and down the road.”