The key to getting the best mortgage interest rates correlates with the risk level lenders and banks perceive you carry. Banks lend money to make money, so they are very selective as to whom they choose to lend to, aiming to have clients they feel confidant with.
We accumulated for you a few insights to help you get the best mortgage deal. Some of the following insights come from our long-term exposure to the mortgage market and some are conclusions detailed in a recent study conducted by Bank of Canada*:
- Banks will usually start with offering you higher rates than they have – especially if you are an existing client. New clients get much better deals. Skilled negotiators and well-informed clients will get the best, and the rest of us will “enjoy” much lesser deals.
- New bank’s clients usually receive less of a discount than borrowers who are new clients in trust companies and credit unions. The bigger the bank is, the higher the rate and penalty it charges.
- Using a mortgage broker creates competition. The broker gets you multiple quotes that are strongly correlated with lower rates.
- Although it’s important to start with a great rate, it is even more important to create flexibilities that will allow you to switch lenders during the term and save in the future. Call us to learn about the most important flexibilities, you would want to make sure to include in your mortgage.
- Usually the best fixed rates will be offered with restrictions. They will allow you to save money in the initial stage, but you won’t be able to improve your situation during the term, causing you to loose out on thousands of dollars in savings.
- In the last 12 years in Canada, trends show that with the variable rate, homeowners were able to save more then with a fixed rate. The decision to take a fluctuating (variable) rate has to be done on a personal opinion and in reference to your style, needs and future plans. We at Sneg mortgage team, create for you a plan relying on your personal preferences and style. This plan has to take into consideration the term nature (open or closed), the length (3, 4, 5 years or more), rate type (variable or fixed), amortization, prepayment privileges, penalty options and much more.
- Good preparation is the key. It will allow you to win a bidding war, purchase your house for a lower price (while offering a shorter time to remove subjects), and negotiate your mortgage with more lenders. An extensive preparation process includes good analysis of the needs, a review of supporting documents such as the credit report, income confirmation, employment letter, NOA (notice of assessment), and down payment verification. Good preparation allows time to find the obstacles and correct them. It also allows us enough time to negotiate the rate on your behalf.
- Lenders prefer larger mortgages and will give them priority over smaller ones. They put the same effort and have the same expenses (appraisals, underwriting, legal costs etc.) no matter the size of the mortgage. In the long run, they are getting paid for the final balance, so larger mortgages are more desirable.
- Lenders prefer you healthy and wealthy. A better credit score gives you access to better mortgage choices. A poor borrower with a lower income and not much net worth faces higher rates. From a bank’s perspective, a larger down payment indicates more financial strength, and you’ll be rewarded with a lower interest rate, therefore they will give better deals to borrowers that come up with a bigger down payment. For the banks, it means these borrowers are less risky.
Bottom line is:
- Focusing on rate is like winning the battle but losing the war. A great rate is only the starting point. By acting smart and incorporating more flexible mortgage features, you’ll be able to save thousands of dollars during the term.
- Instead of getting a mortgage pre-approval, which is a non-guaranteed mortgage declaration, get your mortgage broker to have a mortgage prequalification assessment done for you. In order to do so, the mortgage broker will need all your income documents and down payment statements upfront. On top of knowing the maximum amount you qualify for and having a rate hold for 90-120 days, you’ll now get comprehensive feedback about your documents and whatever else is needed. The result is a solid andguaranteed approval for you as a borrower, even before finding a property. This way you’ll avoid last minute surprises.