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Mortgage Rates

Finding a home is one thing; choosing a mortgage for your new home is another. The process can be stressful for some people, especially homebuyers who have little to no knowledge about Canadian mortgage rates. Those who are not familiar with the process may end up paying thousands of dollars more in their mortgages. 

To help you get the most from your mortgage, find the time to compare mortgage rates from different financial institutions. Better yet, hire a mortgage broker who can assist you better. 

It would be wise not just to consider the mortgage rate when choosing a lender and a type of mortgage. Terms & conditions, closing costs and other fees must be taken into consideration. 

Should You Choose a Closed or an Open Mortgage?

The closed mortgage is popular as it has lower rates compared to the open mortgage. You can either have a variable or a fixed mortgage with this type. However, you will not be able to pay off the entire principal amount before your set term. Otherwise, you will need to pay the prepayment penalty charges. Refinancing a mortgage can also be costly with a closed type.

With open mortgages, you can pay off the balance anytime you want to. You can make a lump-sum payment or increase your regular payments with little penalty. Refinancing a mortgage is also cheaper and flexible with an open type. The downside is, you will get higher interest for it. This type of mortgage is ideal for homebuyers who plan to buy another home or move to another home within a few years. If you intend to stay longer, then a closed mortgage would be ideal. 

Fixed Mortgage Vs Variable Rate

A fixed mortgage is more popular than a variable rate. By fixed, it means that the amount you will be paying for each month will be the same for the entire course of your mortgage term. There is no need to worry if there are sudden changes in the real estate industry as you won’t be affected. You are protected against fluctuations in interest rates. 

Variable rates have lower interest rates but it can be very risky for the homebuyer. There is a chance that you may pay higher mortgage rates, depending on the market condition. 

The current mortgage rate in HSBC Canada is .99% APR in a 5-year variable rate compared to 1.44% APR for a 5-year fixed rate. 

How to Better Negotiate Mortgage Rates in Canada

When negotiating for a better mortgage, you should make it clear to the lender that you are comparing their rates with other financial institutions. Having a good credit rating can give you more leverage and you may be able to demand lower rates. 

Keep in mind that it’s not just you who wants the deal to close. The mortgage process can be stressful especially to the lenders too so they are as eager to close the sale as you are. If you highly qualify, consider asking for a lower mortgage rate. 

Another way to negotiate better rates is by hiring a mortgage broker. An experienced broker knows these numbers by heart and has worked with and even connected with financial institutions. If there is someone who can tell you the mortgage rates and other fees of banks or other lending companies, that will be the mortgage brokers. 

Sometimes you can’t get something that you haven’t actually asked for. You can negotiate lower mortgage rates if you actually ask for it. Before speaking with the lender though, make sure that you have done enough research and that you have compared different mortgage rates from other lenders. Do not just go with banks; consider checking out credit unions and even specialty lenders. 

Always pay attention to details. Do not just look at the mortgage interest rates as there are other costs involved too. Ask if there are prepayment options available or penalties when you need to break the contract. Ask if there are transfer fees and how much. You can also ask the agents to pay for your other costs – and that will add up to your savings. 

How to Get the Best Mortgage Rate in Canada

There are factors that affect your mortgage rates. One of them is your credit score. While you can still get a mortgage from other lenders, the interest rates may be slightly higher compared to what banks offer. Another factor that affects mortgage rate is the property’s location and the property type. Cities like Toronto usually have lower mortgage rates than Halifax. Homebuyers who purchase rental properties tend to have higher rates than those homeowners who live in their properties. 

To take advantage of lower mortgage rates, ensure that you close your mortgage as soon as possible. Lenders charge more the longer they wait for the mortgage to close. Some people also make the mistake of thinking that higher equity has lower mortgage rates. Lower equity usually has insurance and lenders offer them lower mortgage rates because they’re protected by the insurance. 

What you need to get good mortgage rates:

If you are thinking about getting a mortgage in the future, aim for a good credit score. As much as possible, get at least a 620 FICO score. Pay your bills on time; a missed payment could go to your credit report. Keep in mind that banks rely heavily on this. Borrowers with a not-so-desirable credit score either will not get approved for a mortgage or get higher mortgage rates. 

Just like other loans, you need proof of your income. Tax documents and pay stubs should be available as well as any bonuses or commissions you have received. Finally, make sure that you have a reasonable debt ratio. Your other financial obligations must not be more than 44 percent of your gross monthly income. Otherwise, you may not qualify for the lowest mortgage rates. 

Down payment and mortgage rate:

The majority of the Canadian homebuyers would save at least 20% for their downpayment. They are not aware that a 20% downpayment often leads to the highest mortgage rate. What they can do is pay less than 20% and purchase mortgage insurance or CMHC. Because this will not be very risky for the lender, the borrower will likely get lower interest rates. 

What about those borrowers with bad credit?

Borrowers with bad credit can still refinance their mortgage or apply for a new purchase. However, they will not qualify for lower mortgage rates. Fix your credit first before applying for a mortgage. 

The Best Mortgage Rate in Canada for You

Just because it has lower mortgage rates doesn’t mean it’s the best mortgage. You will need to consider other factors in the entire mortgage buying process. The end goal should be to minimize your costs and you can do this by taking the time to research different lenders. Make a list of lenders that offer lower interest rates to the borrowers. The next step would be to take your research further. Do not just stop with the mortgage rates; take into consideration other factors such as the terms, conditions and other fees. If possible, hire a professional to assist you better. Mortgage brokers know about the industry and are familiar with the different terms and rates of different lenders. To help you make an informed decision, talk to these brokers. 

Of course, you can do it alone too. As much as possible, use only reliable sources. Don’t forget to check out our resources to help you get the best mortgage rate in Canada. 

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