Common Mistakes with Mortgages? Here Are A Few!

You are here:

Since the pandemic lockdowns dragged interest rates to historic lows in 2020, Canadians have been diving into the real estate market with unprecedented motivation.

During a time of extraordinary financial disruption, more than 551,000 properties sold last year — a new annual record, according to the Canadian Real Estate Association. Those sales provided a desperately needed dose of oxygen for the country’s gasping economy.

Given the slew of new mortgages taken out in 2020, there were bound to be slip-ups. So, four of the country’s best mortgage experts were asked to share what they feel are the mistakes Canadians most frequently make when securing a home loan.

1: Not having your documents ready

One of your mortgage broker’s primary functions is to provide lenders with paperwork confirming your income, assets, source of down payment and overall reliability as a borrower. Without complete and accurate documentation, no reputable lender will be able to process your loan.

But “borrowers often don’t have these documents on hand,” says John Vo of Halifax, NS. “And even when they do provide these documents, they may not be the correct documentation required.”

Some of the most frequent mistakes Vo sees when borrowers send in their paperwork include:

Not including a name or other relevant details on key pieces of information.
Providing old bank or pay statements instead of those dated within the last 30 days.
Sending only a partial document package. If a lender asks for 6 pages to support your loan, don’t send 2. If you’re asked for 4 months’ worth of bank statements, don’t provide only 1.
Thinking low-quality or blurry files sent by email or text will be good enough. Lenders need to be able to read what you send them.

If you send your broker an incomplete documents package, the result is inevitable: your application will be delayed as long as it takes for you to find the required materials, and your house shopping could be sidetracked for months.

2: Blinded by the rate

Any mortgage broker will tell you that the question they’re asked most frequently is: “What’s your lowest rate?”

The interest rate you’ll pay on your mortgage is a massive consideration, so comparing the rates lenders are offering is a good habit once you’ve fully invested yourself in home shopping.

Rates have been on the rise lately given government actions to stimulate the Canadian economy. You may want to secure a low rate now so you can hold onto it for up to 120 days.

But Chris Kolinski, a broker in Saskatoon, says too many borrowers get obsessed with finding the lowest rate and ignore the other aspects of a mortgage that can greatly impact its overall cost.

“I always ask my clients ‘Do you want to get the best rate, or do you want to save the most money?’ because those two things are not always synonymous,” Kolinski says. “That opens a conversation about needs and wants.”

Many of the rock-bottom interest rates on offer from Canadian lenders can be hard to qualify for, come with limited features, or cost borrowers “a ton” of money if they break their terms, Kolinski points out.

3: Not reading the fine print

Dalia Barsoum of in Woodbridge, Ontario, shares a universal message: “Read the fine print. Understand what you’re signing up for.”

Most borrowers don’t expect they’ll ever break their mortgages, but data collected by TD Bank shows that 7 in 10 homeowners move on from their properties earlier than they expect.

It’s critical to understand your loan’s prepayment privileges and the rules around an early departure. “If you exit the mortgage, how much are you going to pay? It’s really, really important,” Barsoum says.

She has also seen borrowers come to her hoping to refinance a mortgage they received from a private or specialty lender, only to find that what they were attempting was impossible.

“Some of their products are actually fully closed. Even though it’s called a ‘variable mortgage,’ it’s a fully closed product. Regardless of whether you want to pay the penalty or not, you cannot exit that loan,” Barsoum says.

Some agreements include provisions that don’t allow borrowers to leave their mortgages until the property is sold to an unrelated third party.

4: Not seeing the bigger picture

Your mortgage can be a ship that sails you into the pristine waters of financial security or an anchor that drags your family’s finances underwater and turns them into shark food.

Understanding the relationship between your mortgage and your overall economic situation is a key step in the mortgage process, and one that Fair Mortgage Solutions’ Graeme Moss says too many Canadians are willing to skip.

When deciding which mortgage will fit their finances, Moss says borrowers often rely on a single calculation — can I make my payments every month? — without considering their overall financial picture.

“We measure their debt-to-income ratio both now and where it will be at various points in the life of the loan,” Moss says.

Having a similar strategic chat with your broker can help illustrate how a mortgage will interact with your other debts and financial commitments over the life of your loan, which can prevent you from overextending yourself.

It’s also a powerful tool for planning multiple exit strategies in case your personal situation changes unexpectedly before your mortgage term expires. “Everyone has issues,” Moss says, “so you need to have a plan A, B or C.”

5: Rushing in too quickly

With Canadian real estate still on fire and setting more records in 2021, you can be forgiven for feeling pressured to find and finance your first or even next home. Properties vanish quickly from listings within days, so time really is of the essence.

But let’s be real: No matter how sizzling the market gets, rushing into a mortgage is often a terrible idea.

Your mortgage will dictate the strength of your personal finances for decades. The small details you skip over during the mortgage process can result in you paying way more for your mortgage than you need to, or missing out on a property you have your eye on.

Let’s prevent that. You may want to start by checking your credit score to make sure it’s strong enough to secure a good rate. If not, you need to pay down some debt and take other steps to lift your score to where it needs to be.

If you’re a first-time homebuyer who just wants to get in and out of the market as quickly as possible, you may not think you need someone to lay out a long-term game plan for you.

Moss disagrees: “Getting an unbiased snapshot of what you can do is invaluable,” he says.

When you’re looking for a broker, ask questions about how a mortgage will impact your overall financial health. That can be a way of sussing out whether a real estate professional is worthy of your trust.