I have a client who is also a friend of mine who has a lot of equity in his house and was looking to borrow against it. He ended up going to a lender that’s often advertised on TV and was quickly approved.
He had red flags when he saw that his occupation had been listed in the documentation as “construction” when he’s always been a consultant, and mentioned the mortgage application to me.
Now there were a few things that struck me as hinky about this deal. The lender wanted approval to use their lawyer. Nothing wrong with that.
But the lawyer was in BC, not in Ontario. And my pal was charged $ 360 for an appraisal upfront, when most reputable lenders don’t charge anything unless the loan actually goes through.
Anyway, I referred him to a broker I knew he’d get along with well, just to get a second opinion, and she’s now arranged some really great financing for him. She also pointed out, during their discussions, that he wasn’t getting 3.1 per cent per year as the interest rate on the loan he had contemplated with company A, but 3.1 per cent PER MONTH.
I saw the actual approval he had received from company A today and sure enough, the monthly interest rate was going to be 3.1%. The actual cost of borrowing roughly $ 50,000 was going to be almost $ 26,000 in interest. I can’t even imagine it.
Moral of this story? Be very careful before you sign on the dotted line when it comes to putting a mortgage on your home. A mortgage that works out to 36.6 per cent a year is legal (it has to be over 60% before it’s considered criminal), but it’s certainly exploitative and in my opinion, usurious.
Most realtors work with very good mortgage brokers; we’re always happy to give you a referral. My friend is very happy he contacted mine.