Mortgage broker or big bank, and does personality count?
April 11, 2007 10:57 AM   Subscribe

I'm getting a mortgage; I have been talking to my bank, and two mortgage brokers. They are competing, of course, but I'm not real clear on what's important.

Went to a major (Canadian) bank months ago, were approved (for more than we were asking for), without hassle. Nothing changed on this end, but, 24h before the initial closing, the manager -- let's call her Banker Barbara -- decided she wanted a co-signer.

"No," I said. Thank heavens nobody else was interested in the house; extended closing, called a broker...

Within the same 24h, the bank no longer wanted a co-signer. (Huh? I didn't get anything approaching a decent explanation for the temporary screw-over.) 5.10%.

The first broker I went to after the screw-over, "Bob," also offered 5.10%.

Broker "Billy" then entered the picture, at 4.99%.

Banker Barbara: "4.98." I am still irked with Banker Barbara, and I like Broker Billy.

I am less of a fan of Broker Bob, but he's now dangling 4.94 (not guaranteed, but).

Do I let them compete against each other until zero hour? Hang it all and go with Broker Billy? Is there some advantage to having one's mortgage with a big bank? How important is it that I like who I'm dealing with? (If that's important, it looks to be particularly so here. Bob and Barbara irritate; Billy, I like, and he/his assistant are top-notch at quickly giving good answers to questions.) What sort of "what else is involved vis-a-vis your brand of mortgage" questions should I be asking?
posted by kmennie to Work & Money (25 answers total) 2 users marked this as a favorite
Mortgages are more than just a rate. Look at the terms. Is that rate fixed or floating? How many years? Is PMI involved? (Mortgage insurance for those with less than 20% down). No, it's not important that you like the bank. What is important is that you get all the information. Make them break it all down to you. If they want to dodge the details, most likely they're trying to pull the wool over your eyes in an attempt to lure you with a low rate.
posted by genial at 11:12 AM on April 11, 2007

I forgot to mention discount points and origination fees. Both of these will add up your closing costs and if you're covering them and not your seller, than you end up paying for it. A lot of times they will play this game: "I can get you down to 4.9% and I'll just tack on a point, of course you won't have to pay those anyway." They will assume (many times falsely) that the seller is paying closing costs. One point is 1% of a loan I believe, so for a $100,000 loan you'd be looking at an extra $1000 at closing. Just something to think about.
posted by genial at 11:14 AM on April 11, 2007

You didn't tell us any of the other important details. Are those rates all fixed open? fixed closed? variable open? 3 months at the rates you quoted, then the rate jumps, etc, etc, etc.
posted by chunking express at 11:16 AM on April 11, 2007

Response by poster: I should've been more detailed, sorry -- we're looking at 5yrs fixed, still fiddling with amortization length, know about the insurance -- the very basic bits are known factors.

When I asked Banker Barbara, who just rang, to sell her product, I got stuff like "can pre-pay up to 15% w/out penalty, can double payments w/out penalty, "portable" if we move." I'm wondering if there's more to that list (for that part of the question, anyway).
posted by kmennie at 11:17 AM on April 11, 2007

Brokers are bad. Brokers have no interest in anything but their commission.

You should go directly to banks, as your rate and/or closing costs will likely be cheaper. It doesn't have to be a big bank, necessarily.

Personality only matters if you think you will need customer service. Otherwise, all you should care about is rate and terms. I, for example, have automatic debit set up to pay my mortgage and I never give it a second thought, so I don't care much about personalized friendly customer service, etc. I want a good rate, the ability to check my balance online and make additional extra payments when I can afford to easily, and that's about it.

Also: Damn, 4.94% is good. Rates must be different in Canada than the US.
posted by twiggy at 11:18 AM on April 11, 2007

Seeing your follow up: 5 years fixed? Does that mean you're paying the whole thing off in 5 years, or does that mean it's an ARM (adjustable rate mortgage), and it's fixed for the first 5?

Be vary wary of ARMs unless you know you'll be able to refinance in a little under 5 years. ARMs are dangerous and that's why they're all over the press right now. Google the phrase 'subprime mortgage market' (no need for quotes) if you want to learn more.
posted by twiggy at 11:20 AM on April 11, 2007

Response by poster: paying the whole thing off in 5 years


No. Fixed rate for five years; paid off in 25 or 30 years. "Low, low bi-weekly payments" are the priority.

Re. closing costs: the $ for the lawyer is idling in my chequing account; I've already paid for the house and septic inspections.
posted by kmennie at 11:26 AM on April 11, 2007

Response by poster: The term "subprime" isn't well known in Canada
posted by kmennie at 11:31 AM on April 11, 2007

I'm from Canada and 4.94 is a wicked rate. I feel like I got jacked. I second going with a banker; I love being able to call mine up and having her give a fuck. I'm not sure brokers care much about your account once they've found you a mortgage.
posted by chunking express at 11:40 AM on April 11, 2007

I used a broker for my Canadian mortage, getting a better rate than the big banks. Most of the great rates my friends and I have gotten are through bank alternatives like ING, MCAP and PCFinancial. So using a big bank is not necessary in the least, and brokers are good (my guy's commisson came from the lender, not me). The five year fixed probably means a twenty-five year amortisation, which is the standard for first time buyers in Canada. Try lowering your amortisation to 20 years if you can swing it, and I highly recomend a weekly payment instead of monthly. I honestly don't know why anyone would choose anything else. After you sign the mortgage you won't hear from the broker again, you will be dealing with the lender. But the broker you choose may help you out in a few years if you decide to move. I'd go with Bob, myself, but I recognise that buying a home is an emotional time. Being able to prepay without penalty is nice but if it isn't realistic for you then don't sweat it. If you have extra money after you are in your new house are you going to make an extra payment or upgrade the window/floors/buy new furniture? After five years you can re-negotiate extra payments after paying for all those unexpected expenses. Congrats on the house - how exciting for you!
To twiggy: the mortage and housing markets in Canada and America are pretty different right now.
posted by saucysault at 11:53 AM on April 11, 2007

Uh, there's a lot more to closing costs than a lawyer, house inspection and septic inspection. There will (probably) be loan origination fees, abtract fees, title fees, taxes due and pre paid interest due, filing fees, insurance fees, crazy other fees that no one understands...etc, etc.

Sounds to me like you need to start going over some of this stuff with Billy, Bob, and Barbara.
posted by caflores22 at 12:09 PM on April 11, 2007

I'm not sure how it works in Canada but in the US usually they are required to give you a "good faith estimate" of closing costs, you should probably be asking for those if you don't have them already.
posted by caflores22 at 12:11 PM on April 11, 2007

This brief article articulates well some things you might consider. One excerpt: 0.1% savings on the typical 5-year $250,000 mortgage equates to: A difference in monthly payment of only $14; A savings of just $346 over five years on your mortgage balance. But run the numbers every which way. Generous prepayment allowances were very important to us, but you might not give a damn about them.
posted by jamesonandwater at 12:17 PM on April 11, 2007

How important is it that I like who I'm dealing with?

In my experience it hasn't been that important. (I'm in Canada.)

Having a five-year fixed-rate mortgage is good.

can pre-pay up to 15% w/out penalty, can double payments w/out penalty--

Those are good options, because those kinds of payments can really cut down the total interest you'll pay to the bank over the lifetime of the mortgage. (Assuming you're likely to have some extra cash to take advantage of them.)

Similarly, a 30-year amortization will end up costing you more in interest than a 25-year amortization.

Okay, but how do you figure out how significant these extra savings or costs will be? Here's a handy financial calculator that you can use. (Requires Java; if you can't get it to work, just buy a $30 financial calculator that includes Net Present Value calculations.)

For example, with a 25-year amortization, monthly payments, 5% annual interest, total mortgage 100,000 (just for illustration--if your actual mortgage is 250,000, multiply everything by 2.5, etc.), we get

N = 300 (25 x 12)
i% = 0.416667 (5 / 12)
FV = 0
PV = 100,000
Then PMT = 584
Total = 584 x 300 = 175,200. So you'd be paying $75,000 in interest over the lifetime of the mortgage. (I'm assuming interest rates will stay more or less the same and inflation will be more or less zero.)

If you increase your amortization period from 25 years to 30 years, that means N = 360 (30 x 12). So PMT = 536, total = $193,250: you end up paying an extra $20,000 in interest.

If you double your payments, PMT = 1073, then N = 118 (10 years), total = 126,600. You save nearly $50,000 and pay off your mortgage 15 years early.

If you make a 15% prepayment, how much do you save? For simplicity, let's assume you make it at the very beginning of the mortgage: PV = 85,000. Then N = 224, total = 15000 + 224 x 584 = 146,000. By paying the 15% up front, you save 6 years and about $30,000.

What about the difference in interest rates?
5.1%: PMT = $590, total = $177,100.
4.98%: PMT = $583, total = $175,000. About $2000 less.
4.94%: PMT = $581, total = $174,300. About $700 less.

chunking express: I'm from Canada and 4.94 is a wicked rate. I feel like I got jacked.

My first mortgage (in the mid-1990s) was at 7.25%. Or was it 7.75%?

posted by russilwvong at 12:26 PM on April 11, 2007

Oh, and another thing to ask for is deferred payment options, if you can't make a payment because of an emergency how flexible is the lender? If you are paying weekly or bi-weekly the option of missing just one payment a year will not help you in a true emergency. (Curse my slow typing that I posted the same article as you kmennie. Oh well, great minds think alike)
posted by saucysault at 12:27 PM on April 11, 2007

Perhaps the Canadian terminology is different, but there's no such thing as a "5-year-fixed"; mortgages are either fixed or adjustable, and you're being offered a 5-year ARM 30-year mortgage.

Are you confident you can afford the higher interest rate in 2012? Because it will go up in 2012.

Are all the terms the same for each of the three mortgages other than the initial five-year rate? It's silly to choose between 4.94 over 4.98 if the back end is prime+5.5 instead of prime+4.5. Are the prepayment penalties identical if you decide to refinance? Are the fees the same? ("Broker" generally implies "hidden fees.") You've left out a heck of a lot of information.
posted by commander_cool at 1:18 PM on April 11, 2007

In doing business, I've never worried as much about who I do or don't like as who will or won't make me money. You're in a business transaction, not a personal relationship.

Take care of your money.
posted by Elvis at 1:25 PM on April 11, 2007

commander_cool: Perhaps the Canadian terminology is different, but there's no such thing as a "5-year-fixed"; mortgages are either fixed or adjustable, and you're being offered a 5-year ARM 30-year mortgage.

In Canada, unlike the US, the typical maximum mortgage term is five years. (Some banks have started to offer 10- and 25-year mortgages, but at very steep rates. For example, RBC is offering a 25-year mortgage at 8.55%. That would cost you $143,000 in interest, vs. $75,000 at 5%.)
posted by russilwvong at 2:28 PM on April 11, 2007

kmennie said the mortgage would be paid off "in 25 or 30 years." I don't see how that's possible with a five-year term unless it's a balloon payment at the end requiring refinancing. That's gotta be a wildly expensive and inefficient way to achieve the economic equivalent of a 30-year adjustable-rate mortgage, but perhaps that's what's happening.
posted by commander_cool at 2:53 PM on April 11, 2007

The standard amortization period is 25 years, meaning that it will take 25 years to pay off. The five-year term means that your interest rate is fixed for five years. At the end of the term, you have to renew your mortgage. This is all standard practice in Canada.
posted by russilwvong at 3:56 PM on April 11, 2007

So is that a balloon payment after five years, requiring refinancing with risk that you can't get a new mortgage and go into foreclosure, or is the renewal automatic with a new interest rate calculated by a formula? If it's the latter, in the US that's called a 25-year 5/1 ARM mortgage if the interest rate changes annually after the five years are up.
posted by commander_cool at 4:49 PM on April 11, 2007

USians: Please don't worry about the mortgage term on behalf of kmennie. It is very much standard, as many have written above, to have a five year mortgage with a 25 year amortization period in Canada. Heck, Canadians can have 6 month mortgages with 30 year amortization periods if they want to. Refinancing every 5 years is no big deal, even if it may be in the USA.
posted by ssg at 5:33 PM on April 11, 2007

Wait, now I am confused. In America when you buy a house with a mortgage that will take 25 years to pay off do Americans get one mortgage at a set interest rate and have the same monthly payment for the whole 25 years?
posted by saucysault at 6:40 PM on April 11, 2007

Response by poster: Wikipedia: "Outside the United States, fixed-rate mortgages are less popular, and in some countries, true fixed-rate mortgages are not available except for shorter-term loans. For example, in Canada the longest term for which a mortgage rate can be fixed is typically no more than ten years, while mortgage maturities are commonly 25 years."

mutter mutter was it that hard to Google "fixed rate mortgage" and watch the Canadian banks pile up in the results?

Okay, so many thanks for the (helpful) answers. I am now (optimistically?) trying to encourage Banker Barbara to see if she can't make it down to 4.94%, and do me some other banking favours at the same time (actually, two, if you count "And shut up about life insurance; that is adequately addressed elsewhere for us" -- apparently, brokers aren't the only ones interested in commissions).

I said I'd stop looking if she got what I'm asking for; I do get the impression from Billy and Bob that I could play this out for ages and get it ratcheted down more, by 0.01%s. I really encourage people to shop around.

(And not just for mortgages -- estimates for insurance have ranged from $5XX to $1,8XX. I'm starting to think the numbers involved in buying a house are determined by alchemists.)

On preview: saucysault, try the Wikipedia mortgage pages; it does mention here and there what's common in the States. A great read, especially if you're trying to hasten falling asleep.
posted by kmennie at 6:55 PM on April 11, 2007

Saucysault: that's precisely right. It's possible, indeed standard in the US, to get a thirty-year, and even a forty-year mortgage at a fixed interest rate, where all 360 (or 300 or 480) payments are identical. One pays a slight premium in interest over a fifteen-year mortgage, but the American dollar is apparently sufficiently stable that banks are happy to make long-term loans.

Having had a mortgage and a refinancing, and having fully investigating all the options then, and having spoken about American mortgage regulation on national television, I thought I knew mortgage issues inside and out, and it didn't even occur to me that the Canadian economy isn't sufficiently stable to give Canadian consumers the same options readily available to American consumers, while using identical terminology to describe different economic transactions. I'd always thought of Canada as a First World nation, but I guess there are advantages to being an American that I had never realized.

Kmennie, note that google will produce different results in the US than in Canada.

posted by commander_cool at 9:10 AM on April 12, 2007

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