There are many things about mortgages and mortgage lenders that you may not know, especially if it’s your first time buying a home. Mortgage lenders are more than just people who will lend you money to finance your house. Being aware of what else you can do when getting a mortgage may help you get savings in the long run and avoid pricey penalties. Here are six of the most important things you should know before you commit yourself to a mortgage:

1) You can negotiate your loan interest rates

Although banks have “posted interest rates,” it’s a good idea to ask your lender if it’s the best interest rate they have. If you have a solid credit score, a stable income, and the ability to make a 20% downpayment on your home’s purchase price, you might be able to haggle for a better rate with your lender.

2) You can obtain a pre-approval letter

Let’s suppose you manage to negotiate your mortgage interest rates into more favorable rates. Before you celebrate, have your lender put the agreement into writing in the form of a pre-approval letter. Getting pre-approval entails getting your finances and income scrutinized by the lender. Since you are so sure of the state of your finances, you should be able to get a pre-approval letter with ease.

Aside from being a form of protection against possible interest rate hikes within the next 90 days of its validity, you can use a pre-approval letter as leverage in negotiating prices with sellers when shopping for your home. A pre-approval letter shows that you are someone who’s actually one step closer to securing mortgage financing, and any seller would not want to waste their chance getting someone as valuable as you to buy the home they are selling.

3) The bank will send someone to appraise the value of the house

Banks are crafty institutions. They want to make sure that the amount of money they lend you for a mortgage does not exceed the actual value of your home. They are aware that bidding wars can occur and artificially lower the prices of properties, which is why they will hire and send an independent appraiser to evaluate the real value of your newly-bought house before they release the funds you need. Press your lender for more details on the appraisal and discuss them with your real estate agent to prepare for it.

4) You may pre-pay your mortgage but…

Pre-paying your mortgage means you will settle your loans even before the set deadline. Contrary to popular misconception, you may be able to save much on interest costs by pre-paying as lenders may charge you a prepayment penalty. Mortgage interest is a source of profit for your lender and paying your loan ahead of time means they stand to lose money from the interest payments that would have accrued from the months you will no longer have to pay. To account for that lost revenue, they will charge you for paying too early. So much for being an overly diligent mortgagor. Nevertheless, prepayment offers you the advantage of flexibility in your payment terms. If you’re considering and capable of prepayment, make sure to ask your lender about the details before you decide to commit to it in writing.

5) There will be hidden fees!

Banks and realtors engage in the home selling business because they can milk more money out of people. This is the reality of big business, so expect that your lender and realtor will be charging you fees you might not know about. They can get away with it legally, so take the matter up with your bank and real estate agent to try to negotiate the charges.

6) There will be a penalty if you sell your house before you settle your mortgage

For as long as you have not entirely settled your mortgage, the law says that the bank still owns the property you bought. You only get to stay because the bank gave you that right through the loan they lent you. That’s why people get evicted when they default on their loans, and their properties are “foreclosed.” If you decide to sell your house before you have finished paying your mortgage, it is a way of badmouthing the “real” owner of your house. You will pay a heavy price for that. Lenders are powerful entities so you shouldn’t mess with them by selling your still mortgaged home.

If you’re looking to buy real estate in Toronto, get in touch with us today – we’re happy to help. We have a wide range of properties available.