5 Things to Know When Applying for a Mortgage in Vancouver

Applying for a mortgage can be an intimidating process. Making the wrong decision with your mortgage can result in overspending money or getting stuck in a bad deal, so it’s important to be careful when applying for yours. There are several aspects of mortgage contracts you will want to consider when applying for a mortgage. 

Securing a lower rate is something everyone wants, but that doesn’t always necessarily lead to the most money or flexibility down the line. Your mortgage broker will know the ins and outs of the mortgage process and tell you everything you need to know about your contract. 

Here are 5 things to know when applying for a mortgage in Vancouver:

Rate float down policy
If interest mortgage drops shortly after you secure a mortgage with a lender, you might not automatically get the lower rate. However, many lenders will have a policy that allows for a one-time float down rate before closing. Your mortgage broker will know which lenders have the best rate policies for this if you think it’s something that you’ll need. 

Breaking early penalty 
More than 60% of people break their mortgage early. People rarely plan to break a mortgage early when they sign on, but it can happen for many unexpected reasons. For example, you might need to move due to unforeseen circumstances, or come across an opportunity for a lower rate. 

The penalty for breaking your mortgage early will depend on your type of mortgage. The penalty of breaking a variable rate mortgage is usually about 3 months’ interest, whereas the penalty for breaking a fixed rate mortgage can vary based on your lender, and can sometimes be very high. This is why it’s important to consider the penalty for breaking your mortgage when deciding what type of mortgage to choose. 

Prepayment options
If you want to be able to pay off your mortgage as fast as possible, and foresee yourself being able to put a lot of money towards your mortgage at once, you will want to choose a lender with flexible prepayment options. For example, some lenders may only allow you to pay 5-10% per year towards your mortgage, or only pay a single lump sum per year. If you think you’ll need flexible options for prepayment, talk to your mortgage broker. 

Compounding interest rates
When it comes to compounding, many interest rates follow a particular pattern. For example, fixed rate interests often compound semi-annually, whereas variable rates can compound either monthly or semi-annually. This compounding interest can lead to significant variances in how much you spend on your mortgage over the course of the year, so make sure you double check this with your mortgage broker.

Bonafide sale clause
A bonafide sale clause means that you cannot break your mortgage before the term is up. This includes paying the mortgage off in full early, even if you come across a financial windfall which would normally allow you to do so. However, it does not prevent you from selling your home early. 

Now that you know some of the basic clauses and options to be aware of when applying for a mortgage, we hope you’ll be able to make a more informed decision. If you’re still not sure, don’t worry. Your mortgage broker will help you navigate this complicated process and make sure that you get the best mortgage rate and contract for your Vancouver home. 

Ready to get started? Book a call with Your Mortgage Guide to learn more.