The home-buying process can be pretty overwhelming. Applying for a mortgage involves a lot of variables, some expected and some downright frustrating. What can you do to set yourself up to get the best mortgage possible? Let’s dig into 3 tips that will ensure you get a better mortgage:
1. Consider using a mortgage broker
A home is one of the biggest (if not the biggest!) purchases you’ll ever make, so it’s important to shop around and not accept the first mortgage rate you get. Because the home-buying process is overwhelming, it’s tempting to want to accept whatever rate your current bank gives you and be done with it. However, with a little shopping around, there are often better rates to be found which can add up to tens of thousands of dollars saved in interest over the length of your mortgage.
A mortgage broker is often the most efficient way to get the best priced and best-structured mortgage. Rather than shopping around yourself at multiple financial institutions and having to negotiate with each one yourself, a broker is able to do that back and forth for you.
There’s definitely a range of experience and qualifications, so you want to make sure you go with a reputable and experienced broker who’s highly recommended.
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2. Choose a fixed or variable rate
It’s important to decide on a fixed or variable rate. With a fixed-rate mortgage, your rate and the payment you make each month will stay consistent for the entire term of your mortgage. With a variable rate mortgage, your rate will change as the prime lending rate changes, which means that your payments will fluctuate over the term of your mortgage.
Historically, variable-rate mortgages have proved less expensive over time for Canadians, so by default that’s what we recommend to our clients. Obviously, no one has a crystal ball and we don’t know what the future holds, but we default to the math here and the fact that history tends to repeat itself.
However, it’s totally a judgement call and you have to make a decision that you’re comfortable with. Some people would rather choose a fixed mortgage (even with the knowledge that they may pay more in interest over time) because they want to know exactly what payment to expect for the entire term so they can budget for it.
To decide you’ll have to ask yourself things like how tight is your cash flow? Can you absorb a small change in payment? If your mortgage payment went up or down by a few dinners out a month, would that be okay?
3. Look closely at the terms and conditions
Pay attention to those T’s and C’s, folks! The fine print is incredibly important when you’re getting a mortgage but often overlooked in favour of getting the lowest interest rate possible.
The terms and conditions of your mortgage dictate how easy it will be to make changes down the line. If some big life event happens and you need to change your mortgage mid-term—maybe you need to move because you got a job in a different city, or you separated from your partner, or you’re having kids and you decide you need a bigger place—there’s typically a penalty triggered. Porting your mortgage to a new home often doesn’t work and then you’re then forced to pay huge penalties to break your mortgage.
Yes, the interest rate is important, but finding a flexible mortgage with less punitive terms is key. Life happens and we want you to be prepared!
Speaking of being prepared, it’s always important to look at your entire financial picture before getting a mortgage. That’s why we recommend you start by building a plan.