Using a Realtor to Buy a House is FREE and Highly Recommended.

One of the biggest misconceptions that I come across when working with clients on home purchases is that many people are scared to use a realtor for help because they have heard horror stories about realtor commission. It's important to note that I am not a realtor and I do not benefit from recommending that you use a realtor. I just think it's a really good idea.

Thus, as per the title of this post, please note: realtors do not cost anything if you are BUYING a house.

Whether it's someone you know, a friend of a friend, or a referral, a realtor will help you through the steps of your home purchase so that the process can be as stress-free as possible. Contracts can be confusing and are, of course, binding - so make sure that you're covering yourself before you sign!

Mortgage Renewal and the Importance of Getting a 2nd Opinion before you sign

After you obtain a mortgage, you will not have to do much with your mortgage during its term except, of course, to make sure that you continue to make your mortgage payments.  
 

Near the end of your term (remember, term = the length of time of your current mortgage agreement with the bank), your bank will usually send you a letter or contact you via telephone to ask you if you would like to RENEW your mortgage.  

The date at the end of your term is called the mortgage MATURITY DATE.  

When your Maturity Date gets near, the bank will offer you a term and a rate according to their current rates.  You will not be able to renew using the terms of your previous mortgage term.  In other words, if your interest rate for Term 1 was 3.5% but interest rates are 6% at the time of your renewal, the bank will offer you the 6% interest rate.

It is very important to keep in mind that some banks will NOT offer you their best rates upfront.  Many home-owners automatically sign their renewal notices without giving it much thought. I HIGHLY recommend getting a second opinion from a Mortgage Broker BEFORE you sign your mortgage renewal agreement, as this could save you thousands of dollars.

It is also important to keep in mind that all banks offer different rates.  Some banks are more competitive with their rates, while others focus on other areas of banking.  

The best thing for any person to do is to contact a mortgage broker (like me!) approximately 4 months before your mortgage is set to MATURE.  

A mortgage broker will be able to get you a RATE HOLD for 120 days.  Having a Rate Hold ensures that you will be getting the best rate possible.  For instance, if your mortgage broker secures you a rate hold of 4% and, 60 days later, rates have gone up to 5%, you will still be able to get the 4% mortgage rate.

Again, the most important thing that I can teach anyone about Mortgage Renewal is to always get a second opinion before you sign.  Just like in a relationship, you don’t want to settle or commit until you know that you’re getting the best there is out there!

What is a Mortgage Term?

You will often hear the words AMORTIZATION and TERM used together and we have already learnt what AMORTIZATION is (remember: Amortization Period = the amount of time it will take to pay back the money you borrowed). 

A TERM or MORTGAGE TERM is the length of time of your current mortgage agreement with your bank.  This does not necessarily mean that your Term will be the same amount of time as your Amortization Period.  Terms are generally shorter than Amortization Periods - usually 1-5 years long.  This is because with an ever-changing economy and fluctuating interest rates, it would not be ideal for either you or the bank to lock in for such a long period of time. 

Committing to a Term that is shorter than your Amortization Period ensures that you can keep up to date with current interest rates and are able to get out of your contract if necessary. During an Amortization Period, you may have many different Terms – for example, the most typical scenario for First-Time Homebuyers would be to have a 30-year Amortization and a 5-year Term.  In other words, if you kept renewing every 5 years, you would have 6 terms during the life of your mortgage (5 x 6 = 30).

Once a mortgage term ends, you have a choice to RENEW your mortgage term with your current bank or you can SWITCH/TRANSFER to another bank and enter into another mortgage agreement (more on these two things in upcoming posts).  The new bank will lend you the money to pay back your previous bank.