The mortgage closing period is when all the fine details are worked out.Richard Buchan/The Canadian Press
The mortgage closing period, typically a 30-day stretch between your accepted home offer and the final transfer of your money and property title, can be fraught with surprises.
It’s an important time for borrowers to be physically present to deal with the unexpected. Mortgage lenders and brokers typically suggest avoiding travel for at least two weeks prior to your closing date – but you’d be surprised how often people don’t heed this advice.
In fact, vacations are a common and frequently underestimated reason for significant delays during the mortgage closing process.
The mortgage closing period is when all the fine details are worked out. During that time, borrowers are working closely with their lender to satisfy final income and down payment requirements. Behind the scenes, the real estate lawyer is preparing legal documents and conducting services, such as a title search. Insurance is being applied for.
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All parties may require in-person “wet” signatures, as part of fraud prevention practices. Even a small typo on documentation can require a borrower’s immediate attention and remediation.
This is also when most home inspections occur, to make sure the property is up to the lender’s expectations. Things can, and do, come up that may impact your real estate deal, or the amount your lender is willing to lend. All of this is tough to address when you’re out of the country.
It’s not just new homebuyers who make this mistake. Those looking to refinance should also pay attention because pulling equity out of your home is considered to be creating a new loan, and you’ll face the same qualification hurdles as a new mortgage borrower.
This can include a lender-ordered appraisal, even if you’ve lived in your property for years, and fresh income documentation – again, requirements that are difficult to meet if you’re not close to home.
Where borrowers can really feel surprised, though, is when renewal time isn’t on their radar at all and ends up overlapping with an already booked getaway.
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That’s a common issue for snowbirds who still have mortgages back home, or for or anyone else living outside of the country for extended stretches. Lenders must send out a letter informing borrowers of their renewal date, but if you’re away, this could fall through the cracks.
So, what happens if you miss your renewal altogether and you don’t sign back in time? Most lenders will convert you to a short-term open mortgage, until you can get back to them with next steps.
An open mortgage is a flexible product that allows borrowers to end or change their term at any time, but they’re much pricier – typically hundreds of basis points higher – than a closed mortgage.
Few people take out open mortgages unless they have specific reasons, such as if they’re moving in the near future, or planning to pay off a mortgage in full with an inheritance. Ending up in an open mortgage by accident is an expensive mistake.
Does this mean you have to cut your beach getaway short to sign on the dotted line? Not necessarily. Being pro-active about your mortgage renewal, and starting the process as early as possible will also avoid most headaches.
Most lenders will allow for early renewal up to 120 days prior. That way, you can take care of it well before you board your flight. If the scheduling just doesn’t work out, virtual signing, such as with Docusign, is also a possibility. This is best reserved for straightforward renewal deals that involve less to-and-fro and paperwork than a newly minted mortgage loan.
If you’re sticking with the same lender and aren’t making any refinancing changes to your loan, you’re often spared having to reverify your income, as well as title and inspection steps.
But ensuring the process goes smoothly still requires planning. It’s important to let your lender know that you’ll be out of the country so they can prepare the required documents and ensure you don’t need to provide further information.
What do you want to know about mortgages?
Do you have a mortgage question for our expert? Is a variable or fixed rate the best option? Does it make financial sense to refinance? Is it better to consult your bank or go to a mortgage broker?
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Penelope Graham is the head of content at Ratehub.ca
