Sept. 27, 2019
I'm warming to the idea of making the switch and getting my mortgage online. Here's why
I'll admit in my nearly two-decades of home ownership, I've largely stuck with a traditional brick-and-mortar lender or a big bank.
But as online mortgage lending grows and interest rates become more competitive, I'm warming to the idea of making the switch and getting my mortgage online.
The ideal candidate for an online mortgage is a well-qualified, rate-sensitive shopper with pretty basic mortgage needs. In other words, the majority of homeowners and potential homebuyers.
Any search should begin with a rate comparison site. Canadians have several to choose from, including Ratehub.ca, RateSpy.com, LowestRates.ca and RateSupermarket.ca.
You can find the lowest mortgage rates available in your province, and search by fixed rates, variable rates and terms from one to 10 years.
Typically, the main objective of a borrower is to minimize their overall costs. However, that does not necessarily mean choosing the lowest interest rate. Penalties, fees, and rate surcharges can easily offset a small difference in lender rates.
Penalties can apply if you break your mortgage before the term is up, like if you need to sell or refinance your home.
Some lenders have prepayment charges as high as three per cent of your principal - a steep price to pay to break your mortgage.
Other "no-frills" mortgages might restrict you from refinancing with any other lender before maturity, while others might prevent you from increasing your mortgage before maturity without a penalty.
Watch for these restrictions, and more, when searching for an online mortgage.
Read the fine print and pop-up notifications to make sure you understand all of the terms and restrictions before you sign up.
Finally, look for favourable prepayment terms that align with how you want to pay off your mortgage.
A standard should allow you to prepay 15 to 20 per cent in a lump sum each year and/or increase your payments by as much. This is important, especially as you get closer to paying off your mortgage in full.
An online mortgage isn't for everyone, but generally speaking, if you have stable employment, easily verifiable income and a good credit score (700 or better), then it's worth a look.
If you're self-employed, work on commission, have a poor credit history or some other unusual circumstances then it's best to go with a traditional mortgage broker instead of shopping online.
The advantage of getting an online mortgage is that it empowers the individual homeowner or homebuyer to be his or her own mortgage broker.
You're doing the research, finding the lowest interest rates and identifying the most favourable terms that suit your own situation. There's no potential conflict of interest or feeling that you're not being given all the appropriate information. It's right there for you to see.
On the flip-side, you need to be comfortable doing your own research and know the terms and conditions you're looking for in a mortgage. If you mess up, there's no one to blame but yourself.
A conventional mortgage broker works on your behalf to find you the best mortgage. They have access to a wider range of lenders than just one bank. A broker can be helpful and almost necessary for those with poor credit or income that is not easily verifiable.
Beware, though - a broker is paid by the lender and may have priorities other than the homebuyer; for instance, if they're offered an incentive to refer you to one lender over another.
Finally, you can get a mortgage at your bank or credit union.
The upside here is that you might have a long-standing relationship with your bank, or more specifically with an adviser at your bank who knows your history inside and out. It might be more convenient to have all of your banking - including your mortgage - in just one place.
The cons of getting a mortgage at your bank are that you're likely not getting the best interest rate on the market by dealing with just one lender. Heck, your bank might even be offering better rates to other online mortgage shoppers rather than to the customer sitting across the desk.
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