INFORMING HOMEBUYERS
Local experts talk mortgages
Deciding to purchase property, either as a first-time buyer or a seasoned homeowner, is always a complicated undertaking. While budget, location, property type and size, and a slew of other factors need to be considered, you also need to think about the type of mortgage that’s best suited to your needs.
That’s where help from a mortgage professional comes in. Mortgage brokers provide invaluable support in guiding buyers on everything from determining their budget to helping them understand the differences between a fixed and variable rate mortgage. In today ’s financial climate, deciding which mortgage type is right for your situation is critical to your overall financial well-being.
“Sitting down with a mortgage broker should be the first step in buying any property,” said Saguy Elbaz, real estate broker with Sotheby ’s International Realty Québec.
“The mortgage broker will calculate your income, debt, assets and
liabilities to qualify your purchase power.”
Knowing your exact budget is crucial in today’s hot real estate market, he added.
“In multiple offer situations, a buyer with a preapproval letter will be taken a lot more seriously than the rest because it reassures the brokers and the sellers,” Elbaz said.
Of course, obtaining preapproval
entails exploring all mortgage options — most notably, fixed versus variable rate mortgages.
“A variable mortgage will have a rate that fluctuates over its term,” explained Teddy Kyres, mortgage broker and president of Groupe Hypothécaire Orbis. “Financial institutions have a prime rate and your rate will be a certain discount from their prime. The spread is guaranteed; however, prime may fluctuate over the term of the loan. A fixed mortgage is a set rate for the duration of the term, and the rate will not change through the contract.”
Because most economists are predicting that the Bank of Canada will increase their overnight rate, which will have a direct impact on the bank’s prime rate, the market has had variable mortgages priced at a steep discount recently.
“Many buyers have been opting for variable rates due to the difference between variable and fixed rates, where the variable rate could be at a significant discount from the fixed rate,” Kyres said. “It’s very enticing to have such a low interest rate.”
Moreover, since the new NAFTA agreement was signed, fixed mortgage rates have increased.
“So clients must have an important discussion with their mortgage broker as rates seem to be continuing to increase for the next few months,” Kyres said.
In deciding whether to go for a fixed or variable rate mortgage, Kyres stressed the importance of working with a broker to understand the two options, but said that the choice is ultimately up to the client.
“We have an open and frank discussion with clients about their wants, needs and risk tolerance, but we are indifferent to the product that they select,” he said. “We want clients to know the pros and cons of each type of mortgage, and our goal is to ensure that all clients have all the information related to the product they select. Once they are comfortable with the risk of a certain product, fixed or variable, we proceed with their choice.”
Banks should never decide what’s right for the client, he continued.
“Clients should be given all the
correct information related to the risks of each, and it’s the broker’s job to help them make an informed decision as to their choice.”
There is no one perfect product, and many factors play into what’s most appropriate for each client.
“As a mortgage broker, we have access to many different types of products and rates in the market,” Kyres said. “It’s not always about selecting the product with the lowest rate; you must understand all the details of each mortgage before proceeding with a decision.”
In exploring mortgage options for the first time, many buyers are surprised to learn that a mortgage broker’s services are free, meaning the client can leverage their knowledge to make the right decision about their own personal situation.