Make sure you’re getting the best deal on your mortgage.
When caught up in the excitement of buying a home, it’s tempting not to dwell too much on mortgage rates. However, even a small percentage difference can have significant financial implications.
You might be surprised.
The Canadian Real Estate Association notes that the average price paid for a home in February 2023 was $662,437. Excluding the Greater Toronto Area and Greater Vancouver Area, this average drops by almost $135,000.
Consider this scenario: If you purchased a home in March 2022 for the national average price of $796,000, made a down payment of 20% ($159,200), and secured a five-year fixed-rate mortgage at 3.77% with a 25-year amortization period, you would pay $111,563.61 in interest during the five-year term. Over the mortgage’s life, this amount grows to $344,432.24.
However, if you bought the same home in March 2023 with a loan at 5.81%, you would face interest charges of $173,890.95 for the five-year term and a total of $563,994.33 over the mortgage’s lifetime.
Avoid getting trapped with an unfavorable loan. Here are four tips for securing the best possible mortgage.
To secure a low rate, you must demonstrate to the lender that you pose minimal risk.
Start by checking your credit score and taking measures to improve it, such as reducing your debts to achieve a lower debt-to-income ratio.
Lenders prioritize repayment assurance. If you can instill confidence by presenting a credit score above 700 or 750, you’re likely to receive more favorable terms.
Delay applying for a mortgage until you’ve maintained the same job for at least two years. Lenders prefer borrowers with stable employment history.
Keep in mind that lenders often favor borrowers with traditional employment over self-employed individuals and freelancers.
If you’re self-employed but your spouse is employed by a company, consider having the mortgage solely in your spouse’s name to potentially secure a better rate.
Certainly, some mortgages accept minimal down payments, sometimes as low as 5% for properties valued at $500,000 or less.
However, aiming for at least a 20% down payment can secure a lower interest rate.
Should your down payment fall below 20%, anticipate a potentially higher interest rate and the obligation to purchase mortgage default insurance (CMHC insurance), thereby elevating your overall expenses.
Don’t rush into a decision when it comes to choosing a mortgage. Take the time to shop around and compare rates from different lenders. Avoid submitting multiple applications, as each inquiry can impact your credit score. Consider working with a mortgage broker or using an online broker, as they can access rates from multiple lenders with just one credit inquiry.
Keep in mind that interest rates can vary depending on the type of loan. Variable-rate mortgages often have lower rates than fixed-rate mortgages, and shorter-term loans typically offer better rates than longer-term ones.
Choosing the right mortgage interest rate is a significant decision that can affect your finances for years to come. Take the necessary steps to ensure you’re getting the best deal possible.
Alternatively, you can let Homewise handle the legwork for you. This online brokerage negotiates with over 30 major banks and lenders on your behalf, at no cost to you. Plus, the application process only takes five minutes.
Looking for the right mortgage shouldn’t be a hassle. Homewise is an online brokerage that simplifies the process for you. We negotiate with over 30 major banks and lenders on your behalf, free of charge. Plus, our application process is quick and easy, taking just five minutes to complete.
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