December 16 2022
It’s no secret that home ownership is a major milestone that many of us work toward. It’s such an important milestone that doing your homework before entering the process cannot be stressed enough.
Upon starting the process, it’s very common for buyers, especially first-timers, to head straight to their bank to get a mortgage. While it might seem convenient, most banks are quite limited in what they can offer prospective buyers compared to monoline lenders and credit unions. Not only that, the big banks often leave key information out of the conversation that can considerably impact your financial goals and future – such as:
Yes, penalty fees exist and they’re often much larger with big banks.
Breaking your mortgage can happen for many reasons — and many homeowners find themselves having to do so. It can happen if you ever get to a point in your mortgage where you’d like to refinance, break it early, repay a lump sum to pay it down faster or even when you sell your home. However, most banks typically have high “prepayment penalty fees” (which is just a nice way of saying penalties) to offset this type of risk. Prepayment penalties are used to cover the cost that a lender might incur should a homeowner make a payment that exceeds the prepayment privileges allowed for their mortgage. These fees can range from thousands to tens of thousands based on the size of your mortgage and the lender chosen. So, while your bank may have offered you a better rate upfront, make sure you read the fine print and understand how changes throughout your mortgage term — namely your interest differential — could result in greater penalties down the line. Monoline lenders and credit unions usually have much smaller penalties, so it’s key to explore other lenders who can offer more flexibility should you need to make any changes before your mortgage term is up. Another option is to speak to an unbiased Mortgage Advisor like one of ours at Homewise to help you understand how these fees can differ by lender.
Yes, it’s a good idea to pay off your mortgage quicker.
Big banks want you to pay off your mortgage slowly because it allows them to generate revenue through consistent interest rates and service fees. Put simply, the quicker you pay off your mortgage, the less money the bank makes. Mortgage companies like Homewise go a bit further in their client discovery to help you understand how you can pay your mortgage off quickly. This can be done in multiple ways — either by monthly or annual pre-payments to pay off your mortgage principal, or by accelerating your payments to decrease your amortization.
Overall, paying down your mortgage at a 3.5% rate, as an example, is similar to getting a much larger return than comparatively investing your money because it is tax-free.
Homewise will take the time to understand your unique financial situation and source the lenders that will help you achieve your short and long-term goals, whether that’s paying off your mortgage in five years or in 30 years.
Yes, better mortgage options outside the bank often exist.
Working with your family bank may seem like the most convenient and only option but it’s crucial to remember that there’s an entire world of lenders out there who often offer better rates and features. Monoline lenders, credit unions and online mortgage companies like Homewise give you access to a wider variety of full-feature mortgage options that may be better suited for you. You should always shop around for your mortgage, especially at renewal time, to ensure you’re making the right choice. And it’s not as difficult as you might think! At Homewise, we make it simple for you. We do the research, manage the negotiation process and handle all the paperwork to save you both time and money by getting you the best rates and features available, while providing unbiased advice to save the most money at all stages of your mortgage.
So while the big banks may say they have the lowest mortgage rates, that’s often not the case, which is why it’s so important to explore your options before you make a final mortgage decision. At Homewise, we work with over 30 banks and lenders to find you the best mortgage. All you have to do is apply online today and we’ll connect you with one of our dedicated Mortgage Advisors to get you started!
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