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Critical factors when choosing a lender
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By Peter Cook and Robert Fleet

A few basis points saved on the mortgage rate can cost dearly if coupled with the wrong advice. There are many other factors to consider when acquiring a mortgage. For instance, will the lender lock your rate up to 90 days prior to closing? Some lenders don’t allow buyers to lock in until five days before closing. In a rising interest rate market, this limitation may cost thousands in additional interest. Some may allow the option to set the rate early with or without additional fees. Ask your lender to disclose details of when the interest rate may be established and if additional fees apply.

If minimizing the down payment or unlocking maximum equity is important, then consider financing up to 85 per cent of value with a CMHC insured mortgage. Cash flow can be advanced by stretching the amortization to 35 years. Not all lenders offer this. When acquiring a new property consider leveraging beyond 85 per cent using a vendor take back mortgage or adding a second mortgage. A lender should be able to offer second CMHC mortgage financing at close to first mortgage rates. Those considering selling during the term of the mortgage should ensure their mortgage is fully assumable so they don’t incur any penalties if a buyer assumes their mortgage.

 

 

 

Save money, limit exposure

Consider the closing costs when choosing a lender. The cost of appraisals, environmental reports and engineering/ structural reports may vary by thousands of dollars depending on the third party firms approved by the lender. Stipulate that the lender provides quotes from three approved firms and choose which one to use. Some lenders will permit buyers to close with title insurance and allow the lawyer to close both sides of the transaction on mortgages of $3 million or less in most provinces, saving thousands in legal fees.

Those who insure their mortgages through CMHC, not only will save thousands of dollars in interest over the life of the mortgage, they will also limit their exposure. The personal guarantee can be limited to as little as 10 per cent and up to a maximum of 50 per cent of the loan amount depending upon the loan to value percentage.

Meet deadlines and make it convenient

Most commercial mortgages are established based on a spread over Government of Canada bond yields or Canada Mortgage Bond Yields.  Some institutions are now setting rates on a spread over “internal cost of funds.”

The lender’s cost of funds is unpublished and not always correlated with fluctuations in bond rates. Request that the lender provide a quote based on a spread over Government of Canada bond yields or Canada Mortgage Bond Yields depending on which bond they use.

Demand a “one level approval process.” This will enable the buyer to receive letters of interest within 24 hours, allow them to waive financing conditions on time, get the required inspections and get funded on schedule. Multi-departmental institutions may frustrate with last-minute changes, reports or addendums that could delay or prevent closing.

The lender should guarantee that they can lock the rate within 24 hours of receiving a signed commitment letter and associated holding fee. Their lack of timeliness could cost money.

Build a strong relationship with an experienced commercial lender. Select a person that will share their long term experience and is willing to do more than just quote a competitive interest rate. Test their knowledge and willingness to work in your best interest against the information above.

 Peter Cook and Robert Fleet are “Apartment Financing Specialists” with First National Financial LP. Together they have originated over $4 Billion of mortgages. Their combined 32 years experience with mortgage financing has lead to frequent speaking engagements across the country. They freely share their knowledge and techniques with audiences, clients and Canadian Apartment Magazine readers. 

If you have questions, Peter and Robert may be reached by phone or email.

Peter Cook - (416) 593-2913 pcook@firstnational.ca
Robert Fleet - (905) 301-3449 robert.fleet@firstnational.ca

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