Whether you've already found your dream home or you're at the point where you know you'll be soon scouting the market, you're eventually going to have to sit down with a mortgage specialist at your local bank or with a financial lender.

Mortgages are complex financial documents, which is why it's important to prepare ahead of time, confident and ready to ask specific questions that will help you make the best decision when it comes time to sign on the dotted line.

To prepare for your mortgage application, think about the following questions we suggest you ask your mortgage lender.

What Are the Closing Costs?

Should the mortgage be approved and you purchase a home, the bank or financial lender may charge you fees for their services. By law, lenders are required to provide you with a written estimate of all closing costs.

Am I Locked Into an Interest Rate?

Effectively, there are two kinds of mortgages: fixed rate mortgages and variable rate mortgages. A fixed rate mortgage means you'll pay the same interest rate for the entire term of the loan.

A variable mortgage rate, however, changes depending on the Bank of Canada's posted rate plus the bank/lender's differential. If you do decide to choose a variable rate mortgage, it's essential to understand how it's calculated and when it will (potentially) change.

What Is the Mortgage Term?

Most home buyers will be paying off their mortgages for 10-25 years but fail to realize the term of the mortgage is different than the mortgage amortization.

In short, the mortgage amortization is how long you have to pay off the entire balance plus interest. But the mortgage term is how long both you and the bank or lender have before either of you can make a change, such as refinancing.

Even though you'll (probably) still owe the bank/lender money at the end of the mortgage term, you can take out a second mortgage (including from a different bank/lender) or renew the original conditions. Likewise, the bank/lender can either sell off your mortgage to another institution, renew your mortgage under the original conditions, or demand that you pay off the balance in full. 

What Rate Am I Getting?

Be sure you're getting the lowest interest rate available to you. There are websites, such as RateHub which help you compare mortgage interest rates so you can estimate whether or not you're getting a fair deal.

What Are the Penalties for the Mortgage?

Banks and financial institutions are rather peculiar in that they often charge you a fee if you want to do things like pay off the loan early or make more frequent payments to pay off your mortgage faster.

It's, therefore, absolutely essential that you understand exactly what will happen down the road if you make additional payments, pay off the loan early, or want to refinance at the end of your current mortgage term.

What Are Your Qualifying Guidelines for the Mortgage?

Banks and lending institutions have to follow strict guidelines on how to determine if you qualify for a mortgage.

Always get detailed information about qualifying guidelines, including:

• Your income
• Assets
• Liabilities
• Employment
• Credit history and credit score

How Long to Process the Loan Application?

Every bank and lending institution is different, so it's important to know how long it will take before you get a decision. The timeline to get an approval can be anywhere from a few hours to a few days. This is only if the mortgage application and documentation is in order.

What Documents Must I Provide?

Each bank and lending institution is slightly different, so it's essential to know what documents you'll need to provide. Having these ready will also help speed up the application process.

How Much Debt Can I Afford?

Although most people start by finding their dream homes and then going through the steps of taking out a mortgage, most financial experts recommend doing this the other way around. This way, you won't get attached to a house that, in reality, you can't comfortably afford. 

Roughly speaking, all of your debts, including the mortgage payment, credit card bills, or other loans should be 40% or less of your gross monthly income.

Your mortgage loan will probably be the most important financial document you'll ever sign. Therefore, it's absolutely critical to be prepared to extract truthful and useful information when speaking to the lender. 

By having a list of questions prepared ahead of time, you'll be sure to get all of the answers you need to make the best decision possible.

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