Vancouver Sun article by Tamara Leigh
Getting a mortgage is a rite of passage for the aspiring homeowner. With banks offering record low interest rates and a huge range of competing mortgage products, understanding the details of the contract is critical.
Sarah Sangster signed a new mortgage last week. The musician and graphic designer just purchased a small condo in East Vancouver. It’s her first purchase in the Vancouver market, though she has owned two other houses in Winnipeg.
On her third run through the process, Sangster was clear about what she was looking for from her bank when she went to them for a mortgage.
“My main goal was to end up with payments that fit my means with the flexibility to pay more when I’m able without penalty,” she says. It’s the triple crown of the mortgage seeker.
“At a certain level the contracts are all the same,” says Khushhal Bains, a real estate lawyer with Vancouver law firm Bell Alliance. “What’s different is the amount of money, the interest rate and the pre-payment options.”
Like any contract, a mortgage comes with rights and responsibilities for both parties involved. The terms of the mortgage commits the bank to provide the money on the agreed upon date at a specified interest rate, and with certain payment options.
Consumer protection legislation also requires the banks to provide full disclosure about how much money they are going to make on the mortgage, pre-payment options, and the penalties for breaking the contract.
All of the information that a buyer needs will be in the contract, so it’s important for the buyer to persevere through the legal jargon and fine print to make sure that they really understand what they are signing.
“I’m a creative [type], so I tend to glaze over when certain banking terms and numbers are thrown around,” says Sangster. “I just made sure to stay focused and ask a lot of questions of the professionals who were working for me.”
That’s music to the ears of Jessi Johnson, president and CEO of Jessi Johnson Mortgage Brokers. The Vancouver-based broker has made it a personal mission and business to help buyers make better-informed mortgage decisions.
“We’re concerned at the lack of concern that many people have about mortgages,” says Johnson. “Where most people fail is in not asking enough questions, or not picking someone with enough experience to know what they should be asking.” Johnson advises people to put less emphasis on getting the lowest interest rate, and more on the terms and payment options that suit their needs.
“A lot of consumers are not paying attention to what they are getting themselves signed up for,” says Johnson. “They get drawn in by a great rate but they get locked in with minimal prepayment options, limited amortization options, or no secondary financing.”
For Sangster, working with a team to find a home and mortgage to suit her needs made the process a lot easier.
“My realtor was invaluable for the purchasing process, but my mortgage specialist was the most helpful as far as explaining the details of the mortgage itself,” says Sangster. “Developing a good relationship with both, and introducing them to each other fairly early on made for a smooth process.”
Once the mortgage is signed, the responsibility shifts to the homeowner. Signing the contract is a personal promise to pay the loan back with interest, as well as property taxes and strata fees. Embedded in the general terms are commitments not to destroy the property, undertake major renovations or leave the space vacant or unused without notifying the bank.
Some mortgages may offer terms to help homeowners with unforeseen costs or major renovations.
“Because this was my first condo purchase, my biggest worry was that I would end up with a massive repair bill from my strata one day,” says Sangster. “I asked my mortgage specialist what my options would be if any large expenses were to come up, and she showed me the details of an option that allows you to withdraw from your mortgage up to the amount you’ve paid into it.”
The part of the mortgage that many buyers don’t consider is the end. The most common way of breaking a mortgage is to sell the house.
“Sometimes people forget that selling their property is an example of breaking their mortgage,” says Bains. “Before you decide to sell your place, call the bank and find out what the penalty will be.”
According to Johnson, the average mortgage lasts just over three years, but many people sign for a five-year term. The penalties for breaking a mortgage early can add up, so Johnson encourages buyers to think about it in broader terms before they make the commitment.
“What are your intentions for the property? If only planning to stay for two years, why get stuck with a five-year term?” he asks. “Be careful what you get yourself into.”