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How to get the best possible mortgage

Everybody loves a good deal. Whether it’s shopping for a new car, a new wardrobe, or even just groceries, people want to make sure they’re saving as much money as possible. But, do they have the same attitude when it comes to their financial products?

If not, they should. Particularly when it comes to getting a mortgage in Canada, where a few basis point difference in rate can mean the difference of overspending – or saving – hundreds of dollars a year. However, if you’re a first time home buyer it can be difficult knowing where to begin when it comes to finding the best mortgage. So, with that in mind, we put together a handy guide.

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Check your credit score

One aspect – perhaps the most important aspect to most – of mortgage rates is a good credit score. To ensure you qualify for a great mortgage rate, you’ll need to have a solid credit score.

Credit scores range from 300 to 900 and a score above 700 proves you’re good at managing credit and lenders are more likely to give you a preferable rate. Your score is built and maintained through your use of credit and is influenced by a number of factors;

  • Past Payment History – Late or missed payments, overdue accounts, bankruptcies, and any written off debts will all lower your credit score (this makes up 35% of your credit score)
  • Credit Utilization – How much debt you have as a percentage of your available credit will also affect your credit score (You should try to use less than 35% of your available credit) (this makes up 30% of your credit score)
  • Credit History – How long you’ve had accounts open (the longer, the better) (this makes up 15% of your credit score)
  • New Credit Requests – How recently and how often you’ve applied for new credit (checking your own credit score will not affect your score) (this makes up 10% of your score)
  • Types of Credit – Having a mix of credit is best, such as a credit card, an auto loan and a line of credit (10% of your score)

There are plenty of services that allow you to monitor your credit score for free, including Mogo and Borrowell. But, fear not: If your score is less than stellar, you can improve it by developing better credit habits. Just know, though, that a solid credit score will be required if you want the best mortgage rate.

Shop around

If you’re buying a home, you’re probably interested in finding the best mortgage rates in Canada. Many people, when buying their first home, think the first logical place to start when looking for a mortgage is their bank branch. However, with a wealth of knowledge at our fingertips via the internet, it’s easy to search for the best mortgage rate. And a few seconds of searching can save you thousands over the life of your mortgage.

Let’s take a look at an example, using current mortgage rates in Ontario.

The best mortgage rate in Ontario is currently 2.54%. The best rate currently offered by a big bank, however, is 2.97%.

Using Ratehub’s mortgage calculator, we can determine the difference in price between these two rates. Assuming an asking price of $400,000, a down payment of 5%, and an amortization period of 25 years, a homebuyer who has a rate of 2.54% would pay $1,778 in monthly mortgage payments. However, a homebuyer with a rate of 2.97% would pay $1,864 per month. That’s a difference of $86 per month or $1,032 per year.

Speak to a mortgage broker

A good mortgage broker can not only help you find the best mortgage rate, they can explain all the details and the fine print. They have access to dozens of lenders and their services are free to use – they’re compensated by their lender partners when they originate a mortgage. So, if you need some guidance during the mortgage shopping process, a mortgage broker can provide that.

Get a rate hold

Mortgage rates are constantly fluctuating. The best rate available this past February was 3.24%. As mentioned, the best rate currently available is 2.54%. However, rates may rise in the near future.

To ensure you pay the least amount of money as possible on your mortgage, speak to a mortgage broker and get a rate hold, which are available up to 120 days. If rates rise in that time, you’re locked into the lower rate. And, if they fall, you aren’t locked in; so you can get that lower rate.

The bottom line

Buying a home is a stressful and expensive endeavor. However, with a little planning and a little guidance, you can make sure you get the best possible mortgage and take a little stress out of the experience.