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Most Common Mortgage Mistakes And How To Avoid Them

The Canadian Institute of Mortgage Brokers and Lenders conducted the annual survey with sponsorship from the federal government’s housing arm.

The 2002 survey was based on a national sample of 854 active mortgage consumers comprised of first-time buyers, repeat purchasers and those renewing a mortgage.

First, the good news is that the survey found that more Canadian consumers are shopping around for a mortgage. Survey results show 57 percent of home buyers shopped around and received mortgage proposals from different lenders before deciding on a mortgage. This is up from 46 percent one year ago. This is a smart move. With the competition in the Canadian mortgage market today, it is possible for consumers to cut from one-half percent to 1.5 percent off their mortgage rates if they have more than one lender “bidding” for their business.

Here’s a tip: It helps to know what other lenders are offering. You can check the Internet and newspapers to find the rates of other lenders. Then have your lender match or surpass that, especially if you've been a long-time customer.

Also, consumers surveyed said they are becoming accustomed to using the services of mortgage brokers. More than 75 percent of mortgage consumers are familiar with the services offered by brokers. Broker services include shopping for mortgages on behalf of consumers and helping consumers get a better mortgage rate.

The difference can be dramatic. If you were buying a $250,000 home and putting 25 percent down, you could save almost $40,000 over the 25-year-term of the mortgage by using a broker to negotiate just 1.1 percentage points off the posted rate on a five-year term closed mortgage.

Now here’s the bad news. The survey found that mortgage consumers are remaining loyal to their current lender. More than 60 percent of home buyers and 84 percent of those renewing mortgages stay with their current financial institution when applying for or renewing a mortgage. This can be a costly mistake in which consumers trade convenience for long-time savings. Sure, the bank may have treated you well, but you can be stuck with the rates and terms being offered for years by simply rolling over a mortgage with the same lender without checking out your options.

More than half (56 percent) of consumers said they also obtained other products such as lines of credit and life/disability insurance when arranging a mortgage. This can be good or bad news, depending on how the negotiation goes. Adding on other business for the bank can result in a stronger position for the consumer to argue for a lower rate. The problem occurs when the extras are added on after the loan rate is settled and the negotiations are over.

So how should you handle your next mortgage renewal? You will first have to spend some time “crunching the numbers,” researching the market and preparing yourself to negotiate the best deal.

If you are more comfortable at your own home, ask the lender to come to you to discuss the mortgage. This is how 14 percent of homeowners handled their loan renewal last year and, according to the survey.

Know exactly what your current balance is, the interest rate and the term. Ask your potential lender to spell out exactly what the process is going to cost, how any penalties are calculated and finally, be prepared to sell yourself as a good customer.