Your mortgage rate is something you'll have to live with for the next 15-25 years, so of course, you want to make it a good one.
Here are just a few tips for securing the best possible mortgage rate for your property and your family.
1. Pay Off Your Debts
Outstanding debts don't look pretty on a credit report, especially when you're trying to add to them with an ongoing mortgage.
Do yourself a favour and clear out some of that red before you buy a new home.
If you can't repay everything right away, get on a payment plan that shows personal responsibility and accountability for your finances. You can even consolidate your debt to make one monthly payment instead of several.
2. Don't Send Out for Multiple Credit Checks
Speaking of credit scores, were you aware that checking it can actually lower it? There are two types of credit checks: "soft" inquiries and "hard" inquiries. A soft inquiry occurs when you check your own credit score or any third party checks it (not for lending purposes) – this will not affect your score.
Hard inquiries, on the other hand, occur when a lender checks your lending report to actually make a lending decision, and this will typically lower your score by a few points with each check. Try to keep hard inquiries to a minimum in your search for a lender, to keep your credit score as high as possible. When getting pre-approved for a mortgage, ask your lender how the inquiry will be recorded, as it can stay on your report for several years.
3. Increase Your Down Payment
20 percent down payments used to be the industry standard. This has been reduced in recent years to as little as five percent, but if you're looking for ways to lower your mortgage, consider putting down the full 20. This tells the bigwigs you're financially stable and ready to commit to home ownership, and in turn, they might rubber-stamp you for a lower mortgage rate.
4. Consider "Open" Versus "Closed"
Open mortgages can be transferred and prepaid if the need arises. This can be useful when you're buying or selling a current or future property. On the flip side, closed mortgages have fixed terms and penalties for breaking them. They're less flexible than open mortgages, but they generally come with lower rates, so they're worth looking into if you care about your monthly bill more than anything else.
5. Work Closely With Your Broker
Have all of your documents needed to qualify for a mortgage ready when you talk to a broker, including your tax summary, income verification, employment confirmation, and notice of assessment (NOA). Not only will this speed up your application and approval process, but they'll have everything they need to comparison shop for you.
6. Understand the Penalties
Some penalties are federally regulated. For example, according to Canada's National Housing Act, the penalty for breaking a variable-rate mortgage can't be any larger than three months' interest.
But what about penalties imposed by specific banks and mortgage brokers?
Those can get pretty steep, so it's worth doing your research and figuring out which rate will be more forgiving of mistakes and unforeseen circumstances.
7. Ask for a Discretionary Rate
Discretionary rates are unpublished, unadvertised rates that lenders can offer to good customers or potential buyers with high credit scores. They're typically used to cinch a deal, but you can ask about them up front to see if you qualify. Even if you don't meet their standards right away, you can give yourself a goal for next year.
8. Extend the Duration of Your Mortgage
Instead of paying higher sums over a shorter period of time, you might be able to pay lower amounts over a longer repayment term. This usually comes with additional charges and penalties that make your mortgage more expensive overall, but if you're just looking to ease your short-term financial burdens, it might be an option worth considering.
9. Compare and Contrast
The lowest mortgage rate isn't always the best one on the market. For example, if you suspect you might need to refinance down the line, it could be better for you to take a variable mortgage rate versus a fixed one. Even though your interest will fluctuate over time, it will leave you better-prepared for the future when you need to make changes to your policy.
You might be surprised to realize that you have negotiating power as a potential buyer. People tend to think of banks and brokerage firms as unfeeling institutions that can't be bargained with, but the truth is, they're often willing to work with you if you're upfront about your financial limitations. If nothing else, it never hurts to ask.
11. Act Quickly
Some of the best rates are known as "quick close rates," which may be particularly useful due to the recent mortgage rate increases. They'll lock the lender into an offer for a certain period of time while you figure out if you want to pursue the sale. The shorter the window, the better the rate, but even the maximum time limit will sneak up on you. Expect these offers to last only 30-45 days before expiring.
12. Stay Informed
You never know when new regulations will impact the mortgage industry. By signing up for your bank's newsletter or your lender's email notifications, you can ensure you're always at the front of the press room when changes are made. This will let you take advantage of deals, discounts, trends, warnings, and changes before anyone else.
Whether you're buying your first home or just hoping to lower the mortgage payments on the one that you already have, these tips can help you snag a better deal. Good luck!
If this will be your first home purchase, use this beginner's guide to getting your first mortgage to learn about the steps.