As some of you may recall, my girlfriend and I are in the midst of purchasing our first home. Previously, I wrote about the importance of a good realtor and the benefits of quality home inspection.
Our home buying story wouldn’t be complete without telling you about how our mortgage process went.
Despite how others have warned about various hassles of buying a home, I have to say it’s gone incredibly smooth so far. Besides the initial minor problems with the other realtors we tried, there have been virtually no problems. That says a lot about the realtor that we were lucky enough to work with – he was a true professional. Getting the mortgage may have been the only difficult part.
It’s not that the bank wasn’t willing to lend me enough money to buy a home. No, they were quite willing to lend me about 50% more than we needed. Getting the interest rate I wanted was another story.
When I had first started looking into buying my first home last year my lousy realtor convinced me that using a mortgage broker was the best route to take. It seemed to make sense since he would compare rates from different lenders to get me the best deal. Later I realized that the realtor was just trying to get some extra commission through the referral.
So I went ahead and got my mortgage pre-approval through the mortgage broker that the realtor recommended. He seemed pretty helpful early on, answering all my questions and getting me pre-approved for a decent-sized mortgage. If I had gone ahead with that original realtor I probably would have ended up applying for my actual mortgage with this guy.
At the time his rate didn’t sound too bad and I was stoked to get pre-approved for so much. Somehow I bought his line about him not charging me anything for his services. Obviously, someone’s paying him though. If it’s not going to be me, it’s going to be the lender. Of course, they would factor that into the rate they offer him.
I eventually started looking at condos again this year and got another pre-approval through this guy, but the rate still wasn’t what I had hoped for. With all the talk of rock bottom rates out there, I wanted in on that and I felt my credit history was fairly strong. I figured at least the pre-approval was the green light to shop for a condo.
Once we had an accepted offer on the condo we wanted it was time to really get down to business with our home mortgage. Knowing how much I was pre-approved for and what other banks had been advertising, I went in to talk with someone at the bank that I normally deal with. Going with my current bank just seemed like a good idea considering it would make payments easier and they might be more likely to treat me better.
Like any mortgage specialist would do, she did try to sell me at a higher rate than she could actually get me. I don’t blame her since her job is ultimately to make the bank more money. On a side note, I did resent how aggressive she was trying to sell me on getting life and disability insurance.
Out of curiosity, I got in touch with the mortgage broker to see if he could beat the rate I was offered. That’s when he started putting on the pressure. He insisted he could get a better rate and went on to try to put down my bank. In all honesty, I was quite turned off by his approach, especially since he offered me a much higher rate himself earlier. Sure I want the best possible rate, but I could see right through the way he was bashing my bank.
Instead of actually telling me what interest rate he could get me, he tried using a tactic of insisting that I’d have to commit to doing business with him first. Basically, he was trying to tempt me while refusing to get into any kind of bidding war. Although I understood where he was coming from, I was quite reluctant to deal with someone who wouldn’t even tell me the rate he could get.
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Rather than committing to working with someone that I didn’t particularly trust, I went back to my bank’s mortgage specialist with details of the broker’s offer. From there we went back and forth until we reached some numbers that sounded pretty good to me. In the end, it was a much better deal than what the broker had pre-approved me for.
The kicker…when I sent the broker a courtesy ‘thanks but no thanks’ e-mail, he had the nerve to still bash the rate I locked in. The fact of the matter is if he had been willing to be more open, I probably still would’ve done business with him, despite his offsetting approach. I guess he was a little bitter after losing the deal.
The rate I got, in the end, is 2.7% on a 5-year variable mortgage. I realize that a fixed rate might’ve been safer, but as long as we keep an eye out for interest rate increases, we can ride out the low rates for a while. Then when they do go up a bit we can lock in 5 more years at that rate.
Overall I’m quite satisfied with the mortgage we got and really the process wasn’t too painful. It’s nice to have cleared one more hurdle towards owning our first home. Maybe I should’ve kept shopping around for an even better rate, but I doubt I would’ve got much lower.
How did your last mortgage negotiations go? Do you have any tips for getting a good deal on a home mortgage?
Behaviour like your mortgage broker’s always surprises me. It is, in essence, a service industry, right? Even if you paid a bit more, going with the person you were confident in (and who could actually tell you the rate you were getting) was a wise decision.
I’m not yet at the home buying stage, but I’m a sponge for all this info. Thanks for sharing your experiences!
When service and sales fields cross it does unfortunately lead to this kind of service. Sure they are there to provide a service, but there is a big chunk of change at stake. So people’s greed sometimes overrides their desire to genuinely help people.
We went through a broker that was great and did not pressure us at all. We found the broker on our own and did our homework by going to various institutions for comparables. There are the hungry sales type out there and if someone pressures me, I’m gone. I don’t look back. I don’t like feeling like I’m backed in to a corner or I owe anyone anything. I’d rather do my own homework when it comes to referral especially when people lay down the BS just to get a cut of the pie. We learned our lesson with our home inspector who works with the realtor. Referrals are becoming a dying art now that they continually offer people money just to say, ya you liked a service when in reality some people will do just about anything for money even if they didn’t. It’s those people that ruin it for the good guys. NO thanks. I’ll do my own homework and take my chances. Good luck with your house mate and I think you got a reasonable deal for a variable rate.
You’re right that a lot of referrals are bullshit these days. They just refer you to whoever they can make the most money from regardless of whether they will actually provide good service. The interesting part is that for commission based referrals online, the FTC requires that US publishers state that relationship. Yet for offline business transactions people have nobody forcing them to be transparent about referrals.
Staying firm with realtors seems to be the best approach, although it sounds like yours weren’t the pushiest. We had a great realtor who (part of her job, of course), also pushed very hard for various insurances that we didn’t need.
No our actual realtor was great…much better than the first 2 we tried. The mortgage people were not as nice to deal with, but I guess part of that could be that they are less connected to your new home and emotional side of it. To them it really is just numbers.
Congrats!!!
Thanks SFL. It is a pretty exciting time around here.
Perhaps I missed it, but I’m curious about the rest of the terms of your mortgage. When we renewed last fall, yes I got various brokers/banks to quote us a rate, but the rate is only one piece of the puzzle. I’m far more interested in the repayment features and would turn down a lower rate if I didn’t get the repayment terms I expect. If you plan to just pay the required amount for the next ~25yrs then I guess the rate is all you need to worry about.
For any mortgage to be considered I need to have:
1. option to choose accelerated bi-weekly payments (26pmts/yr)
2. option to increase my normal bi-weekly payment up to double the regular amount.
3. extra payments allowed up to 15% of the original mortage amt, every year and payable in any amounts/frequency I want (not limited to one annual lump sum payment).
4. good interest rate
I want that debt paid off ASAP and repayment terms that allow me to do it without penalties are ultimately going to save me a lot more money than a minor difference on the rate. In the end we renewed with our bank again – 5yr fixed at 2.99% with all the repayment options I wanted. We pay every two weeks (not the same as twice a month), the standard payment is rounded up to the next even $100, and every Friday I transfer at least a little extra over to the mortgage.
When I spoke to our bank’s mortgage officer I told him I wasn’t happy with how the last renewal went (5 minutes on the phone and I found 3 independent brokerages offering better rates and the same repayment terms which the bank then matched). I told him he’d get one chance to make his best offer and if I found a better offer somewhere else he wouldn’t be getting a chance to match or beat it. We’ve been customers for 25yrs with a flawless payment history and no drama. If we don’t deserve their best deal, who does? This is our third and final 5yr term but we expect to have it paid off in under 3yrs (so under 13yrs all together).
Congratulations on the new place, and keep in mind, if your mortgage allows for rounded up payments and additional lump sum payments, get busy on those asap. Extra payments in the early years of a mortgage have the most impact. I wish we’d known that, but instead it took us until about year 6 of our mortgage to really start whacking it down with extra payments.
I really like that negotiation tactic you used with your bank. I’m going to have to try that line when it comes time to renew.
My mortgage does allow all of that stuff except that my annual extra payments limit is 10% of the original mortgage. I have it setup for accelerated bi-weekly and I can double up payments whenever I want.
That is a good point about making extra payments early on in a mortgage. The 2.7% of $200k is going to be a lot more than 2.7% of $100-150k.
Thanks for the tips.
That was a good strategy getting a good rate for your mortgage. Poor broker. He blew his chance with his self serving interest. Congrats on your new home!