Top Questions to Ask Your Mortgage Lender Before Finalizing Home Loan Agreement

Property prices have soared significantly over the years, making it impossible for a typical homebuyer to cover the full purchase price upfront. However, thanks to home loans, investing in these expensive assets is still within reach for buyers. If it wasn't for these mortgages, a majority would have found themselves up against a wall while trying to buy a home for sale in Canada.

So, given how crucial a loan is to your home-buying process, you need to begin looking for mortgage lenders as soon as you set your budget. Here are a few questions that you must ask the lenders or brokers you have shortlisted before choosing the “one.” By asking these questions, you can find the best professional for your needs and secure the most profitable mortgage deal possible.

QUESTION #1 - Can You Explain the Types of Mortgages Available?

There are different types of mortgages available to Canadian homebuyers like -

• Conventional mortgages

• High-ratio mortgages

• Fixed-rate mortgages

• Variable-rate mortgages

• Open mortgages

• Closed mortgages

The mortgage lender must explain to you the different mortgage options they offer plus the ones you qualify for. Starting with this question can help resolve much of your confusion about "how to pick a mortgage broker." A reputable mortgage lender will recommend the mortgage option with the best interest rate, terms, and overall fit for your situation, even if it means a lower commission for them.

QUESTION #2 - What Interest Rate and APR Apply to the Mortgage Option You're Recommending?

Interest rate is the hidden giant of mortgage costs. Even a minute difference of 0.5% in rate can significantly impact your monthly payments and the total amount you pay over the loan term. So, make sure to ask the mortgage lenders the best rate they can offer on the recommended loan. Compare the rates and find the lender offering the most competitive deal.

Apart from the interest rate, ask the mortgage lender about the annual percentage rate (APR) of the loan. The APR includes the interest rate plus any additional fees associated with the loan like origination fees, application fees, and others. The APR gives you a more accurate idea of the total cost of the loan expressed as an annual percentage.

Read More: How To Secure the Best Mortgage for Your Home?

QUESTION #3 - Could You Specify the Income and Credit Qualifications Needed for the Loan?

Each mortgage lender has their own credit score requirements. Some lenders may work only with borrowers with high credit scores (above 660). On the other hand, there are lenders that specialize in subprime mortgages which are for borrowers with lower credit scores but come with stricter terms or higher interest rates.

Apart from the credit score, lenders look at your income including your DTI ratio when evaluating your mortgage applications. So, ask the lender their maximum DTI threshold and the documents you’ll need to submit to prove your income.

QUESTION #4 - What Are the Closing Costs Going to Be?

Closing costs are the additional fees you pay to the mortgage lender when the mortgage is finalized and ownership is transferred. They usually cover land transfer tax, legal fees, title insurance, appraisal fees, and other minor fees. Closing costs usually run from 1.5% to 4% of the home purchase price.

Thus, apart from the interest rate and other factors, comparing closing costs can give you a leg up in figuring out “how to pick a mortgage broker.” By selecting a lender with lower closing costs, you can save thousands of dollars on your home purchase.

QUESTION #5 - Is There a Fee for Locking in an Interest Rate?

For those of you who may not know, a rate lock is a commitment given by a lender to give you the loan at a specific interest rate. This guarantee usually holds as long as you close on the property within an allotted time. This rate lock feature protects homebuyers from fluctuating interest rates. After all, even a small increase, like a quarter of a percentage point, can significantly affect your budget in the long run.

Most mortgage lenders offer a 30-day interest rate lock feature with zero charges. But then again, there are lenders that charge for rate locks at around 1% or higher. This means that on a $500,000 mortgage, you’ll be paying up to $5,000 to secure your rate - that’s not at all easy on the wallet.

QUESTION #6 - Do You Impose Charges for Early Payment?

A few months or years down the line, you may get a significant sum of unexpected money from an inheritance, work windfall, or a lottery win. You can use this money to pay down a large chunk of your mortgage balance or even pay it off entirely. By pre-paying your mortgage, you can save hundreds and thousands of dollars in interest.

However, not all lenders allow borrowers to do so, which is why you need to ask the lender this question before signing the deal. In case they do allow you to pay off the mortgage loan faster, ask whether there are any prepayment penalties. Lenders often levy these charges to discourage borrowers from making extra payments, refinancing to a lower rate, or selling their homes before the loan term ends.

QUESTION #7 - How Long Does It Typically Take for You to Process a Loan?

Last but not least, ask the mortgage lenders what their average loan processing time is. Loan processing times can vary significantly between lenders. Knowing about the estimated timeline can be helpful if you’re working with a tight deadline or have a specific closing date in mind.

Typically, a lender can process a loan in 2 to 4 weeks provided the loan is not complex and documents are submitted promptly. Refinance loans may process faster since an appraisal and home inspection is not required.

These Aren't the Only Questions You Can Ask Your Mortgage Lender

A mortgage is a big financial commitment, probably the biggest debt you may take on. Hence, it’s expected that you may have some other doubts about the mortgage process, apart from the above-mentioned questions. Feel free to clear all these queries during your interview with the mortgage lender - it’s your chance to gain clarity and peace of mind.

Remember, the mortgage lender you pick can mean a difference of thousands, or even tens of thousands of dollars over the life of your loan. By taking the time to clear your doubts and understand the terms of the mortgage, you can ensure you’re on a path to financial security and successful homeownership.