In today’s market, securing the best mortgage rate can be challenging. This guide provides key strategies and insights to help Canadians navigate mortgage options and save money on their mortgage payments.
Given the current market conditions , Canadians are more concerned than ever with securing the best rates on their mortgages. In a world of subsequent rate hikes, is it still possible to achieve a great deal? In this guide, we hope to arm you with the knowledge you need to succeed in the mortgage market, and help connect you to the best rates your lender can offer.
A mortgage rate refers to the percentage of interest expressed as a portion of the borrower's principal mortgage amount that must be paid to the lender in the form of regularly scheduled instalments, on top of the original loan amount. Because lenders assume significant financial risk when they grant a borrower a mortgage loan, they charge their borrowers interest payments to offset this risk, and to help guarantee they benefit from the transaction.
Given that the goal of an interest rate is to offset risk, the more likely you are to default on your mortgage, the higher your interest rate will be. You can often qualify for more favourable interest rates by presenting a good credit score, a strong debt repayment history, and a stable source of significant income. For more information, check out our top tips for saving on your mortgage .
Furthermore, there are three different types of mortgage rates: fixed rates, variable rates, and adjustable rates. A fixed rate is an interest rate that remains the same for the entire term of the loan. This means that the borrower's monthly payments and amortization period will remain the same over time until the borrower goes through a mortgage refinance or repays all or part of the mortgage. A variable rate is an interest rate that can change over time, typically in response to changes in a benchmark interest rate, such as the prime rate. This means that the borrower's amortization period, and even monthly payments, may change over time. An adjustable rate (also known as a variable-rate or variable-rate mortgage) is a type of home loan for which the interest rate can change periodically based on the prime rate, and the monthly payments will change accordingly while the amortization period remains constant.
If you are currently in the market for real estate, you may have noticed that most major lenders—such as the big banks—will publicly post their fixed and variable mortgage rates online. These rates are often referred to as a lender’s “posted rates.”
Some walk-in clients looking to borrow a mortgage from these lenders will accept the 5-year posted rate, even though they can be absurdly inflated. In fact, most banks, credit unions, and independent lenders are willing to offer rates up to a full percentage point lower than those posted publicly online. It is up to you, as the borrower, to negotiate these rates down in order to receive a better deal. Some lenders argue that posting inflated rates allows borrowers to negotiate the rates down, which then makes them feel as though they are saving money on their mortgages—increasing overall customer satisfaction.
There are some rates, however, that can only be accessed by a mortgage broker. These rates are not made available to walk-in clients, but they may represent the lowest rates a lending institution is willing to offer. This is what is known as the “actual rates.”
If you are looking to access the actual rates, you might be best served by working with a licensed mortgage broker. Most lenders have partnerships with a variety of brokers, and will only offer their lowest rates through those channels. Experienced homebuyers may be aware of this trend, thus benefiting from the actual rates, but new homeowners may find themselves not negotiating with lenders and instead paying the inflated posted rates.
What is a mortgage rate?
A mortgage rate is the interest percentage charged on the principal mortgage amount, paid to the lender in regular installments. It varies based on borrower risk factors like credit score, income stability, and loan type.
If you are looking to minimize your overall interest fees, and save money on your monthly payments, there are a few different approaches you can take. Here are a few strategies you can employ to set yourself up for fiscal success:
Ready to start shopping around for a mortgage? Contact Clover Mortgage to book a free consultation, and lock in your low rate today!