Author: Bruce

When you make the decision to refinance your existing mortgage or purchase a new home, you have the decision to work with a mortgage broker or with a direct lender. It may initially make sense to cut out the middle man and work with a lender. However, brokers offer exceptional services that will benefit you throughout your transaction. While there is a fee associated with using a broker’s services, you will find that there is true value in these services.

Understanding the Market
When you head straight to a lender, you will typically receive little education or insight about the mortgage industry. With a traditional or standard loan request, you may find that the market can be complicated and confusing. After all, there are many terms and concepts that can be difficult to understand. You will be on your own to figure the terms and process out on your own when you work with a lender directly. When you have a special loan situation, such as with a bad credit mortgage refinance or purchase loan, your loan is much more complex. On the other hand, our mortgage broker has an incredible understanding of the market, and you can use this insight and guidance in your favor as you try to find the right loan program for your needs. In fact, your broker likely knows exactly which traditional or high risk mortgage lenders would be the best option for your specific loan request. This can save you time and hassle, and it can also ensure that you get the right loan set up for your needs.

Working on Your Behalf
Your mortgage broker is an independent consultant who has been hired by you and who is working on your behalf throughout the mortgage financing process. On the other hand, when you work directly with a lender, you will work with a representative who is a bank employee. This representative serves the bank’s interests rather than yours. Your home loan is one of the most significant debts that you may take on. Therefore, it is in your interest to hire an expert who is working on your behalf to set up the right loan and to guide you through the process.

You understandably want to keep your closing costs as low as possible when buying a new home or refinancing your existing loan. However, in some cases, you may lose money overall when you work with a direct lender and do not have a broker shopping on your behalf. After all, the lender who you work with will affect your closing costs, loan amount and interest rate. Your broker can help you to find the most affordable loan and may save you far more than you pay for his or her services.

Most people who buy a home take out a mortgage loan for an average of 25 to 30 years. Longer or shorter terms may be available, depending on the applicant’s financial factors. This average loan period represents approximately one-third of a person’s lifetime, which is a long time to make monthly payments on personal property. However, many loans are available without a prepayment penalty clause, which means that home mortgages can usually be paid off early if the buyer is able to do so. While the typical monthly house payment is often large enough to preclude additional payments for a regular household, there are ways to pay additional amounts on the mortgage to pay off the loan faster, potentially saving thousands of dollars in interest overall and freeing up the monthly budget from a sizable house payment that can then be spent on other things.

Make extra payments.

Paying just one or two extra house payments annually can take years off the total loan period and reduce interest paid by thousands of dollars. Check with the lender to ensure the additional payments are credited to the loan principal as extra payments, not late fees or other loan costs.

Apply windfalls.

Job bonuses, rebates, cash gifts, and tax refunds provide extra income to pay off mortgages sooner. There is no loan commitment to pay extra on a regular basis, so just apply whatever additional income becomes available to the loan’s principal balance to reduce the total remaining amount owed. This in turn will lower the amount of interest paid over the life of the loan.

Add small amounts.

You can make even small payments each month on the principal balance of the mortgage loan. Paying just $10 or $20 can make a dent in the mortgage balance over time. Larger amounts can make an even bigger impact. For example, when you pay off the car loan, apply that monthly amount to the mortgage balance each month for additional long-term savings.

Refinance the mortgage loan.

Mortgage rates are still low enough to make it worthwhile to consider refinancing your home loan. Replacing a 5 percent interest loan with one that is 3.5 percent for 15 years may keep the monthly payment at a similar level, but the interest rate will drop substantially, meaning that the house will be paid off more quickly.

You don’t need huge sums of money to pay down your mortgage ahead of schedule. Making occasional extra payments, adding windfalls, applying small monthly amounts, and refinancing your loan can save considerable interest and pay the home off sooner. Imagine your monthly budget without a house payment and the home’s value for emergency equity as incentives to get started. The Windsor Family Credit Union website is a useful reference for more information.

Whether you are applying for a first or a second mortgage for refinancing or buying plans, you understandably want to make an informed decision that helps you to achieve your goals and that is right for your financial future. Unfortunately, when many people apply for a new mortgage, they only think about their immediate financial state. For example, you may ensure that you can afford the new mortgage payment based on your current budget. While this is an important step to take, you also need to think farther ahead to ensure that the mortgage terms are right for you.

How Long You Plan to Own the House
Many applicants work with mortgage brokers when applying for a Canadian mortgage, and this is a great way to find the best rate possible on your loan. However, while much emphasis is focused on the interest rate and the resulting monthly payment, less emphasis is placed on the term of the loan. The term of your loan will impact how quickly you can pay off the loan, how much interest is charged over the life of the loan and even how affordable it may be for you to sell the house in the future. For example, if you plan to retire in the house within 15 years, a 15-year mortgage may be ideal. If you plan to sell the house within five years, you may need to consider how much equity you will have in the home by then. Your term length will greatly affect equity appreciation.

How Quickly the Debt Will Be Repaid
When you choose a shorter term length, your payments will be higher. However, in exchange for the higher payments, the loan balance will be paid off more quickly. Equity will accrue faster, and less interest will be paid over the life of the loan. This can affect your ability to sell the home for a profit in the near future, the date you are able to retire without a mortgage payment and more. Your mortgage broker can assist you in exploring this in greater detail.

How Your Budget May Change in the Future
Another factor to consider is fluctuations in your budget. Most people have minor budget adjustments throughout the year, but there may be major life events that can dramatically affect your budget. For example, you may plan to start a new business soon, to have a baby or to send a child to college. Remember that your budget will be affected by your mortgage payment for the life of the loan, and this may span across decades.

The best mortgage is one that is affordable for your budget now and that helps you to achieve goals you have for the future. Explore each of these points carefully before you apply for mortgage financing to ensure that you are making the right financial decision. The Canadian Mortgage Services website is a good reference if you want to find more information online.