Common Mortgage Myths Winnipeg Residents Can Dismiss
April 23, 2018 | Posted by: Ron Chan
There are many myths and misconceptions in the field or home mortgages. These lead current and prospective homeowners and investors to make some poor decisions, or no decision at all, the latter of which can result in opportunity lost. This is as true in Winnipeg, as much as anywhere, if not more, as a lack of information can at times plague our local market. However, as an independent mortgage broker with no other agenda beyond serving your best interests (and not that of lenders) I'm here to debunk some of those common myths so that you can make more educated choices about your home purchase prospects.
5 Myths and Misconceptions About Getting and/or Maintaining a Mortgage in Winnipeg Manitoba
1. Pre-qualification is the Same as Pre-Approval
Pre-qualification serves one key purpose - it lets you know how much you can afford. However, its receipt does not mean you will get the mortgage loan, so don't crack the champagne bottle and throw the rental lease agreement in your landlord's face quite yet.
During the pre-qualification process, a lender will analyze your assets, look at your household income, and pull a quick credit report to assess what sort or mortgage you can expect to be approved for. However, the lender does not yet investigate the itty bitty details of your finances at this stage. They are making no commitment at this time. They simply want to asses whether or not you're a candidate, and if so, what your realistic budget looks like, on the surface. At the very least, you will know your home shopping price range.
A pre-approval, is much more involved. At this stage, you will complete a mortgage application and then supply a lender with all of the necessary documentation that will allow them perform a comprehensive analysis on your financial background and most up to date credit rating. Once this process has been completed, you will receive a commitment for the exact amount that you are approved for. At this juncture, you may also learn your interest rate, and may be able to lock it in. You can now start shopping for a home, but remeber, pre-approval does mean you can get willy nilly with your credit. A lender is free to revoke your approval at any time before the closing date of your mortgage, so put those credit cards away.
2. You Should Pay Off Your Mortgage as Quickly as Possible
This misconcpetion applies to many debt payment considerations. On the surface, it seems like a great idea to pay down a specific debt right away. In many cases this makes sense, but not always.
When you pay down your mortgage it does not equate an equal boost in equity, it simply reduces your principal. While it's nice to reduce the overall balance of your loan, you will want to consider whether or not the money could be put to an investment than can earn you a greater relative return. If the interest earned on an investment opportunity is greater than that of the interest you are paying on your mortgage, then go with the investment (all esle equal).
There are also mortgage interest tax deductible considerations at play, something that you will need to factor in when it comes to your unique tax bracket.
Bottom line, don't go putting every last bit of extra money onto your mortgage until you look at the big picture.
3. You Need at Least 20% Downpayment to Get a Good Mortgage
Far too many Winnipeg residents put off getting a dream home and/or real estate investment opportunity because of this myth. The 20% rule is an antiquated one, steeped in historically poor interest rates for those with few funds to buy into a home. But today, there are many competitive rates on the market, and lenders who are eager to approve loans for low risk households with solid financial prospects. The catch, is that lenders aren't so quick to market these rates, prefering to work with select brokers to bring them those prospects. You can view low rates here, or contact me for unpublished rate specials.
4. You Can't Switch Mortgage Lenders for a Better Rate
Another popular common myth is that switching your mortgage for a better rate is difficult. However, it’s actually an easy mortgage transaction. View more on the specifics of the process right here.
5. You Don't Need to Use a Mortgage Broker
It's more efficient to get rid of the proverbial middleman/person, right? Not when it comes to dealing with mortgage lenders.
No individual, couple, household, or investor should seek a home loan without a broker. An licensed broker with years of professional experience in the local Winnipeg MB market will boast well-established ties with lenders, banks, financial institutions, and other parties that are instrumental in reaching your goals. These relationships provide access to non-advertised, discounted bulk rates with immediate savings (as per item #3 above) that are passed down to you. In addition, a broker will help you wade through the muddy waters that created all of the myths addressed above. Remember, a broker works for you, and you alone. Learn more about why you need to use a broker for your up and coming mortgage.
If you need clarity on anything addressed here today, or have any other questions, be sure to follow-up with me, Ron Chan at your earliest convenience.