How To Shop Around for Better Mortgage Rates
The Importance of Researching and Comparing Rates
Did you know that shopping around for mortgage rates could save you thousands of dollars over the term of your mortgage?
One of the most critical aspects of mortgage shopping is the opportunity to research and compare rates from different lenders. This process, often referred to as ‘rate shopping’, can potentially lead to significant savings over the term of the mortgage as mortgage rates can vary between lenders due to factors such as the lender’s size, their risk tolerance, and their access to capital. By researching and comparing rates, homeowners can gain a better understanding of the market and identify the most competitive offers.
However, it’s important to note that the lowest rate may not always be the best option. Homeowners should also consider other factors such as the flexibility of the mortgage terms, the reputation of the lender, and the quality of their customer service.
Furthermore, homeowners should be aware of the potential impact of interest rates on their monthly payments. A lower interest rate can significantly reduce the amount of interest paid over the term of the mortgage, making the mortgage more affordable in the long run. On the other hand, a higher interest rate, while resulting in higher monthly payments, might offer more flexibility in terms of prepayment options or other beneficial terms.
Tips on How to Effectively Shop Around for Better Mortgage Rates
Shopping around for better mortgage rates can be a complicated process, but there are several strategies that can make it more effective:
Start Early
Begin the process at least four months before you need the mortgage. This gives you ample time to research and negotiate with various lenders. You can use this time to understand the market trends, identify potential lenders, and learn about the different types of mortgages available. It also gives you a chance to improve your credit score if needed, which can help you secure a better rate.
Read the Fine Print
While a low mortgage rate can be attractive, it’s important to read the fine print before making a decision. Some mortgages may come with restrictions or conditions that could end up costing you more in the long run. For example, there might be unusually high penalties for paying off the mortgage early, or the rate might be variable, meaning it could increase in the future. Make sure to understand all the terms and conditions of the mortgage, including the interest rate, the payment schedule, and any fees or penalties that may apply. If any terms are unclear, do not hesitate to ask for clarification. Remember, a mortgage is a long-term commitment, so it’s important to make sure you’re fully informed before making a decision.
Consult a Mortgage Broker
A mortgage broker can simplify the process by doing the legwork for you. They have access to a wide range of lenders and can help you find the best rates and terms based on your unique needs. If you feel you need to interview multiple brokers, do it, but once you find one that you are comfortable dealing with, stick with that person, and let them do the work for you. They will conduct the research and negotiation with lenders on your behalf.
Unpublished Rate Specials
Your broker may have access to lenders that don’t publish their specials. For example, a web site of a lender or a broker may show a rate that may be higher than what the current special is. Some rate specials are not advertised and may only be available to brokers that do high volume of mortgage business. Always ask for your broker if there are any rate specials currently.
Consider Smaller Lenders
Everybody knows the big six banks in Canada, but there are other lenders out there that could be a good choice for a mortgage. These institutions may offer competitive rates and terms that are comparable or even superior to those offered by larger banks. As they typically have a smaller customer base, they can often provide more personalized service. Furthermore, smaller lenders may offer more flexibility in their lending criteria. This can be advantageous for homeowners who may not meet the strict criteria set by larger banks. Talk to your broker about smaller out of town lenders that don’t have local branches.
Consider Starting With a Variable-Rate Mortgage (ARM)
A variable-rate mortgage, also known as an Adjustable Rate Mortgage (ARM) has an interest rate that adjusts over time in response to changes in the market interest rates. When market rates decline, the interest rate on an ARM decreases as well, leading to lower mortgage payments. This can result in significant savings over the term of the mortgage.
One of the key advantages of an ARM is its flexibility. Unlike fixed-rate mortgages, most ARM can be broken with only a three-month interest penalty. This means that if interest rates drop significantly, homeowners have the option to break their mortgage early and then register a new fixed-rate mortgage. This allows them to lock in the lower rate providing stability and predictability in their mortgage payments.
Do Not Apply Everywhere
Contrary to a popular belief that shopping around can save you money, the truth is that shopping around in the wrong way can actually cost you money. This is due to the fact that too many applications with too many lenders will result in multiple credit bureau inquiries, and eventually affect your credit score. Lenders use credit scores as one of the key factors in determining the interest rate offered on a mortgage. In addition to the lower credit score, with each additional credit pull the lender will see your previous attempts to apply and not take you seriously enough to work on getting you their best deal. You should shop around, but that process should be done by your mortgage broker, who can approach multiple lenders with only one credit inquiry and one application.
Conclusion
This article is a brief overview of how to shop the market for a better mortgage rate. While the process may be complex, borrowers can take steps to improve their chances of approval in the current real estate market. By doing your homework, starting early, and consulting with a mortgage broker, you can go through the mortgage process more effectively and secure a mortgage that fits your needs and financial goals.
At TheBroker.ca Ltd, we understand what needs to be done to secure a mortgage. We can help identify lenders that best match your credit profile. Talk to us. We can offer you helpful advice on getting a mortgage, understanding current mortgage rates, and guide you through the process that will help you make informed decisions that align with your financial goals.
About Us
At TheBroker.ca Ltd, we are constantly looking for ways to provide helpful advice related to mortgages, current mortgage rates, and more. If you have any questions or need further assistance, we offer a complimentary no-obligation consultation. Feel free to reach out to us at (519) 252-9665 during our regular business hours. Alternatively, you can fill out our contact form, and your message will be promptly emailed to us. We value your time and inquiries, and we make it our priority to respond to all messages within one business day. When reaching out, please provide us with your contact details, a brief overview of your mortgage needs, and the most convenient times for you to have a consultation. We look forward to assisting you with your mortgage.
This article was brought to you by TheBroker.ca Ltd., a mortgage brokerage that is licensed with the Financial Services Regulatory Agency of Ontario (FSRA), which regulates businesses in the financial sector. The Principal Broker Sash Trajkovski has over 20 years of real estate and mortgage experience in the Ontario marketplace. You can verify our licenses by visiting the following links from FSRA’s website: our corporate license and Principal Broker license. Our mortgage services are available to all residents of Ontario. If you’re in Ontario and looking for more personalized advice and information, consider booking your Complimentary Consultation today, and let us help you understand the details that will guide you on your path to a suitable mortgage solution.
Disclaimer: Please note that this information is current as of the date of publication and is intended to be general in nature. It is not intended to provide legal, tax, financial, or other professional advice and should not be relied upon as such. Always consult with a professional for advice tailored to your individual circumstances.
