How to pick the best mortgage and not get screwed
If you haven’t had the feeling you were getting screwed by a mechanic then you haven’t owned a car. If you didn’t select your mortgage yourself, you probably didn’t pick the best mortgage.
Getting a mortgage is a lot like getting your car fixed. You know you need what the mechanic sells, but you also know that you are at a distinct disadvantage. The mechanic knows a lot more about your car and how to fix it than you do. If he didn’t, you would fix it yourself. So you put your trust in them, not actually knowing if they are doing what is best for you, or for them.
In the mortgage world, getting screwed is all to common. The problem is, most people don’t know they got screwed until well after the first payment.
Even though banks are required to disclose all their terms and conditions in their mortgage contracts, they are not required to explain them to you. Furthermore, most lawyers don’t have the time to explain them either. So when a mortgage contract says something like, “You can pay off this mortgage anytime within the first three years,” that is what you expect. But, if you miss the next line that says, “only upon the sale of your home,” you will likely be a little upset when you want to refinance in two years and told you can’t
What the contract should say is, “you cannot pay off this mortgage in the first three years unless you sell.” But unfortunately the language is tricky. See how it can get confusing? We try to explain the details in our Mortgages 101 and Mortgage Rates 101 sections, but the reality is you really have to know mortgages to pick up on the subtleties.
So how do you get a mortgage without getting screwed. First of all, you have to find someone you trust. Then, once you find that person, make sure that they are willing to go through every single option with you until you know exactly what you are getting.
Sorry, but if the person you trust works for a bank you need to find someone else. Bank employees rarely have the expertise to discuss all the options provided through other lenders. Sometimes they don’t even have the expertise to discuss their own mortgage products properly.
Then, you need to make sure that you are selecting your mortgage, not having one selected for you. If a broker won’t tell you what lender you are going to, or decides for you, make sure you ask more questions. Like, “do you get paid more by this lender than others?” And, “What are my other options?” If it seems more like a sales pitch than a consultation, it probably is, and it probably means you aren’t going to get the best mortgage for you.
We find that after a proper consultation, clients usually choose a different lender than they would have otherwise. For example, a TD client who bleeds green may come in thinking that TD will be their choice. Yet, when they realize that a First National mortgage will have a much smaller payout penalty, they change their minds.
An RBC client who wants to pay off their mortgage faster may end up choosing the TD mortgage because they can make more pre-payments. Just because one’s bank is right for their everyday banking needs doesn’t mean they are right for their mortgage.
What we find interesting is that we start to see patterns. When clients start selecting mortgages based on features, certain lenders stand out as having the best mortgage. Take a look at the graph below. It is a breakdown of the lenders our clients selected over the last 18 months. It is clear that First National has the features that clients want. Low payout penalties, good pre-payment privileges, and great rates. They may not have the lowest rates on the market, but they are the least likely lender to screw someone. (at least in our opinion)
Lenders with the Best Mortgages
Of the big banks, Scotia seems to have the best mortgage, the one with the most desirable features. Good pre-payment privileges and pretty good rates, and most importantly no surprises. They may have slightly higher payout penalties than some of the monoline lenders (lenders that only sell mortgages), but they also have the benefit of a branch network and other products to offer.
Best Mortgage Lenders as Chosen by Our Clients
- First National – 47%
- Scotiabank – 35%
- Merix – 4%
- Street Capital – 4%
- CFF – 3%
- ATB – 3%
- Equitable – 2%
- National Bank – 1%
- TD – 1%
What is clear is that people make different decisions when they have clarity. When they understand the differences between mortgages they make smarter choices. Choices that make it less likely for them to get screwed.
More importantly, we find that few people end up picking the mortgage with the lowest rate. They pick the mortgage with the best combination of features and rate.
Every client in Calgary who gets a mortgage through us goes through a 30 minute consultation. In that time we go through all the options available and narrow it down to four or five lenders. Of those, the client typically chooses the lowest rate. However, they are choosing the lowest rate from the lenders who have the features they need. Not the lowest rate that will eventually come with some expensive surprises.
If you want to take a look at some of the different restrictions lenders put on mortgages and figure out the best mortgage for you without having a consultation, give our Mortgage Game a try.