There’s a funny thing about mortgages. Despite the fact that interest rates are near record lows, what you see posted at the big banks aren’t necessarily the best mortgage rates available. This might come as a surprise to some but this practice has existed for many years.
Shaving just a few points off your mortgage rate could save you tens of thousands of dollars over the term of your mortgage so why wouldn’t you want to get the lowest rate available? Fortunately, with a few simple steps, you’ll be saving in no time.
Getting your finances in order
One of the first steps to becoming a homeowner is preparing your finances. Obviously, you know you’ll need a down payment to put towards the purchase of your home, but having a solid credit score is just as important if not more important.
If you’re not sure why your credit score isn’t very high, order a credit report so you can take the steps to correct any errors. From there, if you continue to pay your bills on time every month, you should be able to increase your credit score relatively quick.
You’ll also want to try and clear any outstanding debt since your debt-to-income ratio is one of the major factors when lenders decide how much they’ll lend you. Outstanding credit card debt, student loans, or car loans will affect how much money you can borrow.
Keep in mind that when you purchase a home with less than 20% down, you’re required to pay CMHC insurance, which is added directly to your mortgage. I’s an expense that’s best avoided but some people are willing to pay the premium just to become homeowners.
Work with a broker
In the past, you’d get dressed up in your best clothes and visit all the different banks to apply for a mortgage. But these days, if you work with a mortgage broker, you don’t even need to leave your home to get the best rate available.
Mortgage brokers don’t work for one lender. Instead, they deal with multiple lenders and it’s their job to find the best rate available to you. Since they’re negotiating on your behalf, you’ll almost always get the best mortgage rate when working with a mortgage broker. The best thing about working with a broker is the fact that you don’t need to pay them because they’re paid a commission from the lender for bringing them the business.
In many situations, the best rate available comes from smaller lenders that you may not have heard of but that doesn’t make them any less credible. If you prefer to borrow from a big bank, simply let your broker know that as they’ll still be able to get you a better rate than what’s posted.
Picking a mortgage that suits your needs
When selecting a mortgage, you can choose from a fixed or variable rate. A fixed rate means you will pay the same amount for the length of the term. Variable-rate mortgages start at a lower rate compared to fixed-rate mortgages, but they change based on what the Bank of Canada has set the overnight rate at. You’re basically balancing risk versus reward.
The loan term you decide won’t affect your mortgage rate. But the longer the term you choose, the more you end up paying in interest. Be sure to select a mortgage that gives you some pre-payment options so you can reduce the length on your own terms. Alternatively, you could always accelerate your payments so you pay off your mortgage faster.
Remember, the lowest mortgage rate doesn’t necessarily mean that’s the best mortgage for you. Your mortgage broker will be able to explain all the different options available and recommend a loan that makes the most sense for you.
- 5 First-Time Mortgage Experiences
- How Mortgage Rates Can Vary by Bank Branch
- The Nuts and Bolts of Saving for A Home Down Payment
Flickr: Speedy Property Buyers