Shopping for a Mortgage? Know Your Options

If you are currently looking for mortgage financing and live in Vancouver or elsewhere in British Columbia, you will learn very quickly that are so many lenders and sources of mortgage funds out there. There are numerous mortgage options for any and all types of mortgage requests, whether you live in the Metro Vancouver area, on Vancouver Island, or in the Okanagan. Funds for mortgages are available from the major banks to individual private lenders. The competition for mortgage business is great, especially in today’s market, allowing customers to benefit from the many options and competition for their valued business. Because of this, a borrower should do their research before deciding on a mortgage lender to move forward with. Another option would be to take on the services of a mortgage broker, who will effectively maneuver you through the mortgage market maze. A mortgage broker will save you a lot of time and explain in detail the various mortgage products and options available depending on your situation. Brokers can “cut to the chase”, as they specialize in mortgages. After an initial consultation, they are able to pinpoint and narrow down the best finance options quickly and effectively for customers.
 
Here is a list of the various sources of mortgages available for residential or Commercial purposes that one may wish to consider:
 
1) Commercial Banks:   
The primary commercial banks in Canada are:

• Royal Bank of Canada
• Bank Of Montreal
  
• Bank of Nova Scotia
  
• Toronto Dominion Bank
  
• Canadian Imperial Bank of Commerce
  
• National Bank of Canada
  

 
Commercial Banks typically offer the lowest interest rates, along with special mortgage products and benefits to customers. Commercial banks are usually on top of the list when it comes to the best interest rate discounts and specials.  However, their lending standards are strict and the turnaround for getting a loan is far longer than most lenders. 
 
2) Trust Companies:  
Trust companies are generally the next step down from commercial banks.  They are an alternative lender, whose mortgage rates are marginally higher than banks, and their loan guidelines are more flexible. Further, they may charge a small fee for arranging the loan called a lender fee. This lender fee is usually .50 – 1% of the gross loan. This fee is charged in addition to interest rate. 

3) Credit Unions:  
Another option to getting cost effective mortgage financing is through a credit union. Credit unions offer a full range of bank services. They cover off everything from loans of all descriptions to various types of accounts such as saving, checking, etc. Their interest rates compare with bank rates in most cases. Credit unions are non-profit, so they often have lower fees than traditional banks. Credit unions are community oriented, offering fast and personalized services to their customers.

4) Mortgage Investment Companies:
Mortgage investment companies are non-bank lenders who provide creative financing solutions. They mainly cater to customers who have poor or damaged credit, and little or no income to show.  They take on riskier loans and are primarily an equity lender. They put a bulk of the weight for approval on the type of real estate and the amount of equity available to lend on. Their rates are much higher that banks, credit unions & trust companies. They are a flexible lender with far fewer lending guidelines, but all at a higher cost than most market lenders. They also charge a lender fee for their services. Lender fees can start as low as .50% of the gross loan and go up from there.

5) Private Lenders:  
Private mortgage lenders are individual people who lend their own funds for mortgage financing. Private lenders are private individuals who could be a friend, family member, acquaintance, etc. Private mortgage lenders are usually very flexible and determine their own lending guidelines. They are great to work with one on one, as they call their own shots, since it is their money. Their interest rates are higher than most lenders, and they may charge a fee for the loan in addition to. Turnaround for approval and funding with a private lender can be quick. This is because they have far fewer guidelines, and the buck stops with them.

6) Vendor Take-Back mortgage (VTB):
A vendor loan is when the seller of a property extends a loan to buyer to help secure the sale of the property. This happens when the buyer does not have enough resources to close on the sale of a property. If down payment & the approved 1st mortgage of the buyer is not enough to cover the price of a piece of property, there will be a shortfall. The seller may carry back a loan in the amount of the shortfall, so the buyer can close on the sale. This will ensure that there are enough funds to complete on the sale. The vendor loan in this case would be a 2nd mortgage secured against the property, right behind the 1st mortgage. The vendor loan would be registered in favour of the seller, yielding interest to the lenders benefit. The details of the vendor loan are usually negotiated directly between the seller and purchaser.

7) Assuming an existing mortgage:  
Another option to getting a mortgage when purchasing a property, is to assume the existing mortgage on that property. You may legally take over a mortgage by assuming the original loan. In order to do this, you must meet the lenders requirements. That is that you would have to fully qualify under the lender’s guidelines. Further, you would have to carry on with the existing rate and loan provisions if you assume the loan. If this is an option you might be considering, you must ensure the loan is assumable, and get proper legal advice as to your legal obligations under the original loan.

8) Reverse Mortgage:   
A reverse mortgage may be an ideal loan option for seniors who have plenty of equity in their home. The equity in the home may be used to get a loan called a “reverse mortgage”. Unlike regular mortgages, there is no repayment required from the borrower until they pass away, or the home is sold. This allows the borrower access to funds without having regular monthly mortgage payments. The borrower can decide if they want the loan in one lump sum, or disbursed in set up intervals. It allows folks to hold on to the ownership of their home and have funds available for their day to day. The costs associated with reverse mortgages is often higher than most other alternatives, but it offers definite advantages to the elderly, who would not typically qualify for a bank loan.
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As you can see, there are many options to pursue for mortgage financing. It would be strongly advised that one should seek out the services of a mortgage broker to better understand the options best suited for a borrower. If you’re a current homeowner looking to explore your mortgage options, get in touch with us for a free quote today: 604.620.2697​.