In today's highly competitive world of finance, negotiating a mortgage with a lender can be confusing to the experienced. With the help of your REALTOR and the following tips, you should be ready to meet the challenge head-on.

Mortgage lenders come in many forms: banks, trust companies, credit unions, life insurance companies, finance companies, etc. But note, not all are suitable for every situation.

To start, gather as much information on your own as you can from available sources. Visit several of the lenders you believe might be interested in your business. And remember, you don't always have to accept the terms offered by the lender you consult. You can bargain on some issues and in most situations you can shop around.

If you let the lender know you are comparing programs, you may find a very attractive package offered to you. Don't be intimidated. Make your selection carefully and with as much knowledge and professional advice as you can acquire.

You may decide to use the assistance of a mortgage broker. The broker's purpose is to find financing for buyers of a wide variety of types of property, and for others wishing to adjust their current financing arrangements.

The broker is paid a fee, usually by the lender, if the client follows through with the lender. It's a good idea to find out up-front, whether you are expected to pay a fee. In certain cases the buyer (client) will be asked to pay, especially where it is difficult to find a willing lender. This may happen where an applicant is self-employed, has a poor or shaky credit rating, is overloaded with consumer debt or has an irregular employment history.

When you first discuss your mortgage application with a lending body, you may find they're using terms you've never heard before. The following terms are several of the most common.

Gross Debt Service Ratio (GDS): When a potential borrower applies for a mortgage, the lender looks at the borrower's gross income and multiplies that amount by a percentage to determine the amount of income the lender would allow that buyer to spend on a mortgage including the property taxes and utilities. The allowable limit is usually in the range of 28 to 35 per cent.

Total Debt Service Ratio (TDS): The total debt service is the GDS plus any monthly payments to which the borrower is obliged, such as credit card minimum payments, car payments, other mortgages, child support, etc. Most lenders will permit between 37 and 42 per cent for all of these payments plus the GDS.

If you're already a homeowner and you've been considering the purchase of a recreation or investment property, perhaps this is an option you'd like to investigate.

Blended or Averaged Rates: A blended or average rate is arrived at by analysing two mortgages, their interest rates and their proportion to the whole package. You may wish to consider increasing the size of your existing mortgage in order to invest in a second property.

If the rate on the new financing is higher than your current rate, ask the lender if you can average the two rates to remain close to the lower rate. Most lenders will look at this request seriously as it involves new business for them.

There are many other terms and conditions to negotiate in a mortgage: high ratio vs. conventional mortgages; fixed vs. variable rate; closed vs. open, prepayment privilege (are there penalties?); and amortization period, to name a few.

The REALTOR you are working with will be able to provide you with information regarding current interest rates, terms, conditions and special programs from various sources.

The above article was prepared on behalf of the REALTORS of the Vancouver Island Real Estate Board for the information and benefit of consumers.

January, 1995
rev Jan/98