A lender’s best kept secret and weapon: your credit history
Getting a great mortgage interest rate involves showing prospective lenders that you’re a reliable client to whom they can lend a large sum of money.
Financial institutions are very selective about how much they lend and to whom they lend. Knowing the ins and outs of how to get a manageable interest rate can save you time, worry and money.
Listed below are tips to help you maximize your mortgage rate options and search.
Think about what kind of interest rate you want: fixed or variable?
Firstly, take a hard look into and examine your financial situation and preferences. Take notes on how your finances look now and possibly in the near future. Weigh the pros and cons of getting a fixed or variable rate. Consider how long you want to finance each term. Banks, credit unions, trust companies, etc. all offer a variety of financing options.
Once you’ve decided, if you can get a mortgage pre-approval, that’s even better. Mortgage pre-approvals give you a quick scope of the maximum mortgage amount you have to work with. Additionally, pre-approved mortgage rates are locked in for 4 months as soon as you qualify. If rates drop, you get the lower rate. If the rates increase, you will still keep the rate you initially qualified for.
Are you saving for a down payment? Aim for 20%.
In today’s economy, it currently takes the average Canadian 102 weeks to save a down payment. This is double the time it took (just under 50 weeks) in the year 2000. There are benefits to offering a larger down payment, so the extra year can help. (Industry consensus is to aim for a 20% offer or more)
When you offer a down payment at or above 20%, you display financial strength to lenders. Offering more than 20% of your mortgage’s worth up front is no small task. However, it is doable with sacrifice, planning and compromise. Putting down 20%+ on the table also eliminates the need for CMHC (mortgage default) insurance.
If you’re tempted to spend, consider locking away the money in a redeemable 1, 3, or 5-year TFSA GIC account. You can withdraw all or part of your savings at a future date. Most plans appreciate value with competitive interest rates.
However, if you can’t save up 20%, offer as much as you can and discuss prepayment options with your lending institution.
(Fair warning: understand that you’ll have to pay mortgage default premiums and higher interest rates if you offer a low deposit. )
Keep your mortgage shopping time short
When shopping for your mortgage, aim to keep the process under two weeks. Each credit history/score inquiry (called a “hard hit”) a financial institution makes can temporarily lower your credit score.
Consider making a list of places to visit, reviewing rates over the week and devoting a weekend to mortgage shopping, if possible. You can also use comparison sites to examine rates to get an idea of the current market before shopping.
If consulting a brokerage, work with a reputable company
Should you not want to apply for a mortgage on your own through your financial institution, seek the services of a brokerage firm or an individual broker. A broker opens up your options both to getting lower quotes and a better variety of mortgage packages.
Great brokers and brokerage firms have access to lending products from variety of institutional partners that they’ve built long-term relationships with. Because of this, they get exclusive rates not available to the general market.
Check with your regional or provincial registry services, ask friends and family, and consult online reviews to find out who provides quality service.
When you’ve found a broker, clarify any commission charges and broker’s fees. Also make sure that they do not conduct a credit check until you’ve mutually agreed on an institution to pursue the mortgage with. Not doing this will again result in unnecessary hard hits on your credit score.
Overall, getting a great mortgage rate involves cooperation, hard work, saving smartly and dedication – and we know you have all those qualities and more!
Getting a great mortgage interest rate can be daunting. Let us help you get pre-qualified today!