THINGS YOU SHOULD NEVER TRUST:

1.Gas Station Sushi

2.Emails from Nigerian Princes

3.60 Second Online Mortgage Pre-Approvals

Not all mortgage pre-approvals are created equally.

Many lenders offer quick and easy pre-qualification numbers for their clients and others will issue written pre-approval letters without any documentation requirements. As we all know, this can lead to heartache down the road when a deal goes live and an offer to purchase is in place.

My clients are offered a fully underwritten Pre-Approval.

The Top 3 Questions clients have about Mortgage Pre-Approvals:

1. What is an Underwritten Pre-Approval?

A fully underwritten preapproval ensures that not only we take a full application, but we collect and review the client’s paperwork upfront. This is not standard practice in the industry unfortunately.  A client’s ability to qualify for a mortgage hinges on 4 main criteria– Their provable income, their down payment, AND their credit bureau showing their ratings and liabilities. Collecting and reviewing this information upfront helps us avoid any confusion or disappointment at the time of purchase. Through no fault of their own, clients often misrepresent their information on a mortgage application.

For example, with an online application a client may advise that their annual income is $120k, (understandably basing this on their tax return info from the previous year). However, every lender has their own rules and document requirements for proving and accepting various income sources. Unless this is 100% salaried income – we need to investigate further to determine the income that can be used – IE: Hourly rates, shift premiums, taxable benefits, support payments, child tax credits, and  self-employment income are all handled differently.

2. If I am Pre-Approved, Why do I need a Finance Condition in my Offer?

I will always advise any client who requires a mortgage, preapproved or not –make their offer conditional to financing. The reason for this is that the client themselves is only half of the equation. The lender also has to approve the property in question, and this cannot happen until a written offer to purchase is in place. A lender may approve a client but decline a property. This could be due to any number of reasons, for example, a lower appraised value or special assessments that are disclosed once reviewing the condo documents.

Clients also need to be aware that a preapproval is based on their information at the time of application. If there are any material changes to their information (new debts, income or employment changes etc.) this can also affect their approval at the time of purchase. I always advise my clients contact me before making any material changes or applying for any new loans or liabilities.

3. Does a Pre-Approval come with any Obligation?

The answer is NO.

Most Pre-Approvals are good for 120 days and come with a rate hold for that period. If you decide not to purchase or use this preapproval it simply expires after that 4 months. It can be cancelled at any time or renewed at expiry if desired. The main benefit to the rate hold is that it does protect the client from any rate increases over the 120 period.

Another great advantage to working with a Mortgage Advisor who has access to  many lender options is that we will always shop around again for our clients  at the time of purchase . If some time has passed since the pre-approval was issued, we may find a better rate or product on the market and opt not to proceed with the lender who pre-approved you.

One of the decisions you will need to make before your new mortgage is set up, is what kind of payment frequency you would like to have. For many, sticking to a monthly payment is the default, however, different frequencies may end up saving you less interest over time.

Monthly Payments

Monthly payments are exactly as they sound, one payment every month until the maturity date of you mortgage at the end of your term. Took a 3-year term? You will make 36 payments (12 payments a year) and then you will need to renegotiate your interest rate. 5-year term? You will make 60 payments.

$500,000 mortgage

3% interest rate

5-year term

$2,366.23 monthly payment

$427,372.90 remaining over 20 years

$69,346.70 paid to interest

$72,627.01 paid to principal

Semi Monthly

Semi-monthly is not bi-weekly. Semi monthly is your monthly payment divided by two. That means, you are making 24 payments every year, but each payment is slightly less than half of what the monthly payment would of been.

$500,000 mortgage

3% interest rate

5-year term

$1,182.38 semi monthly payment

$427,372.99 remaining over 20 years

$69,258.59 paid to interest

$72,627.01 paid to principal

Bi-Weekly

Bi-weekly, you are not making 2 payments every month. With 52 weeks in a year, you are actually making 26 payments, 2 more than semi-monthly (2 months a year you make 3 bi-weekly payments). The interest paid and balance owing are slightly less than the others, but mere cents. You will still need to make payments for another 20 years.

$500,000 mortgage

3% interest rate

5-year term

$1,091.38 bi-weekly payment

$427,372.36 remaining over 20 years

$69,251.76 paid to interest

$72,627.64 paid to principal

Accelerated Bi-Weekly

Just like regular bi-weekly, you are not making 2 payments every month. With 52 weeks in a year, you are actually making 26 payments, 2 more than semi-monthly. However because this is accelerated, the payment amount is higher.

$500,000 mortgage

3% interest rate

5-year term

$1,183.11 accelerated bi-weekly payment

$414,521.40 remaining over 17 years 4 months

$68,325.70 paid to interest

$85,478.60 paid to principal

You have increased your yearly payment amount by $2,384.98, $11,924.90 over 5-years. That extra $11,924.90 has decreased your outstanding balance at the end of your mortgage term by $12,850.96 because more of your payments went to principal and less went to interest. Also, you will now have your mortgage paid off more than 2.5 years earlier.

The same option is available for accelerated weekly payments which will shave another month off of time required to pay back the whole loan as well. If you can afford to go accelerated, your best option is to do so! Especially in the early years where a larger portion of your payments are going towards interest, not paying down your principal.

If you have any questions, please do not hesitate to reach out to me anytime. Cory Lewis – Jencor Mortgage

Original post by Ryan Oake – Dominion Lending Centers – Accredited Mortgage Professional