There are 4 simple questions you MUST ask when “shopping” to help you determine if the bank or mortgage specialist deserves the privilege of managing your mortgage. If they can’t answer any of these 4 questions properly, you should …RUN…DON’T WALK…to someone that does!
1) What are mortgage rates based on?
Fixed mortgage rates are largely based on bond market yields, and variable rate mortgages are based on the ‘prime’ rate which is set by the bank of Canada (www.bankofcanada.ca).
Would you use a financial advisor that doesn’t know what a mutual fund is?? Of course not! The same should be true of who you trust your mortgage with. The reason I’d start with this simple question is it’ll help you quickly determine if you are dealing with a mortgage professional that understands the industry and market, or just someone quoting a rate and trying to sell you something they don’t know much about.
2) Will rising interest rates in the coming years affect me if I have a fixed rate mortgage and how will you personally help me deal with this?
Rising rates will ABSOLUTELY IMPACT YOU even though you have a fixed rate mortgage. If rates rise (to normal levels around 5%) and you’re unprepared for this, you will be vulnerable to “payment shock” which is incredibly risky to your long term financial health.
Many bankers will lead you to believe that a fixed rate mortgage protects you from the market. This is a very short sighted and financially dangerous thought process, so make sure you work with a mortgage professional that is prepared to pro-actively manage your mortgage through the ups and downs of the market.
3) What strategy are you recommending for me and why?
It’s smart to ask this question because if the individual is unable to clearly articulate the strategy behind their mortgage recommendations then they are just quoting a rate and quite frankly anyone can do that. Your home is likely your largest financial investment so make sure you are dealing with a professional that has a solid financial plan and is equipped to help manage the mortgage over its lifetime.
4) What commitment are you giving me to personally manage my mortgage over the long term.
This is the most important question. Many bankers and advisors have no desire or ability to manage your mortgage over the long haul. Once your mortgage funds, they put your file in a drawer and move on to the next potential customer. You need and deserve a mortgage professional that will:
– Set up a mortgage with a term, great rate, and flexibility suited to your needs.
– Help you prepare and take advantage of changing markets.
– Ensure you don’t miss an opportunity to renegotiate.
– Help you when your term is up.
– Advise you in accessing existing equity for other investments or renovations.
– Guide you when your specific financial situation changes (for better or worse).
– Be determined to save you money and care about you overall financial wellbeing.
Be smart. Ask these questions and take notes. Make sure you get the right answers before signing on the dotted line.