Posted by John Doe
Mortgage rates ebb and flow as our economy shifts. In Canada, if the economy is in bad shape then interest rates on mortgages are going to be higher. On the contrary, when our economy is rebounding or enjoying a period of stability then rates are going to be lower. There’s no trick to getting the best mortgage rate but there are things you can do to ensure that you get the exact rate that you want.
Get Your Credit in Order
Before you start mortgage shopping and looking for the best rate, ensure that your credit is in order. Lenders want to give mortgages to people who have superior credit. If your credit score is sub-par you will not get the best interest rate. It’s okay to have debt. You don’t have to pay off all your credit cards, student loans and car leases all at once. However, you need to maintain a manageable debt-to-income-ratio.
Your DTI is how much debt you are carrying versus how much income you collect before taxes. If you are taking in more income than you are carrying in debt then you’re DTI is manageable. Conversely, if you owe more than you are making you need to rectify that before you even think about applying for a mortgage. If you apply for a mortgage with a high DTI and bad credit you will not get the best rate. In fact, you probably won’t get a mortgage at all and if you do, the interest rate will be so high your DTI will skyrocket making it almost impossible to pay anything off.
If your credit is sub-par you can repair it by paying your bills on time each month and avoiding taking out any other loans. To find out your credit score there are only two official organizations in Canada that allow you to do so: TransUnion Canada and Equifax Canada. Any score above 680 makes you a low-risk borrower and attractive to mortgage lenders. You can check your credit score yearly if you need to. Remember, the better your score, the better your potential mortgage rate will be.
Avoid Your Bank
Your bank is perfect for taking care of all your banking needs. They can offer you products like TFSAs and RRSPs. They can help you set up savings accounts that are specifically created to put your children through school. Your bank even offers the convenience of an ATM where you can deposit cheques and withdraw cash without interacting with a teller. However, the one thing your bank shouldn’t do is offer you a mortgage. Your bank does have mortgage products available but that doesn’t mean they’re looking out for your best interest when it comes to securing funding for your new home.
Your bank can only offer you their products so whatever they have on hand when you visit them for mortgage advice is what you’re going to get. Furthermore, your bank has quotas they have to fill every month and certain products they have to push. They may convince you that whatever product they’re pushing that day is right for you but in reality they have their own special interests at heart. Your bank may tell you that because you’re a preferred customer that they can get you the best mortgage rate but it’s probably all talk. Stick with your bank for everything banking related but do not ask them to get you a mortgage.
Visit a Mortgage Broker
The best way to get the best mortgage rate is to meet with a broker. Mortgage brokers know the industry inside and out. They are well-versed in everything mortgage-related and can guide you towards the best package to suit your financial needs. It’s important to remember that what works for one person may not work for another (which is why your bank shouldn’t be your go-to for mortgages as they only have a few products). Mortgage brokers are able to secure funding for you with an ideal rate based on exactly what you need.
Moreover, mortgage brokers have relationships with different lenders and aren’t locked into one product with one lending institution. They shop around on your behalf and can leverage different lenders to get you a great rate. Also, mortgage brokers are able to secure funding for different types of mortgages, not just for first-time homebuyers. Mortgage brokers are able to get everything from second and third mortgages, to investment property mortgages, Home Equity Lines of Credits (HELOC), and mortgages for your cottages.
The bottom line is this: When it comes to securing the best mortgage rate, use the services of a broker. If not, you could be stuck with a mortgage rate and lending package that doesn’t fit your needs at all.