Comparing Mortgage Rates: Ensure You're Getting the Best in Canada
Like any major purchase, acquiring the best mortgage for your circumstances will require some shopping around. Mortgage brokers are employed to do just that. A good mortgage broker will have access to several lenders and know the market well. They should act as your own personal shopper.
Often times, mortgage lenders (usually banks) act as both lenders and brokers, which means they can only broker the mortgage products the institution for which they are working provide. Be sure to inquire as to how the mortgage broker you employ works, and that they are really combing the whole Canadian mortgage market for the best mortgage product available, and not just their institution's.
Also inquire as to how the broker is going to be compensated for your mortgage transaction. Very seldom do Canadian brokers charge fees. Usually brokers are compensated by the lending institution through basis points, a small percentage of the loan paid by the lender when the mortgage deal is closed.
Determine if the Rates You See Posted Are Valid
Unfortunately, many online mortgage providers will post rates lower than what are realistically available in a classic bait and switch sales lure. You see a rate that looks appealing and call in to the company only to find that this mortgage rate is only available in certain areas, or under virtually impossible terms, or that the rate simply has not been updated in real time.
Ensure that you compare all the top rates available in Canada, by examining a mortgage rate comparison chart or informational site. Establish the top three mortgage rates being offered, and investigate the terms associated with these rates. Look out for and ask about the following hitches that could make the top rate not so appealing:
- Prepayments: Does the mortgage product allow you to make extra payments on the principal of your loan additional to your monthly payments? This can make a huge difference over a five-year term, especially if you know you are expecting a large sum of finances to come in at some point within the term.
- Closing fees: Ensure you know all the closing costs that are associated with this loan product. Are broker fees or other lender fees going to be tacked on at the end? Request an estimate of the total amount of fees that will become due when the loan is secured.
- Adjustable rates: Be sure to know if the rate being offered is fixed or adjustable, and if it is adjustable, ask whether payments will go down if rates go down, or if a greater portion of your payment will be applied to the principal at these times. Also ask about the ability to lock in to fixed rates if you opt for a variable or adjustable rate mortgage.
- Basis Points: Basis points are fees paid to the broker by the lender associated with the amount of the mortgage loan. The more basis points attributed to the loan, the higher the interest rate. You're getting a good deal when a mortgage broker is receiving about 90 basis points, or 0.9 per cent of the mortgage loan value.
Negotiation Is Your Tool
Remember that if you were going to a car dealership to purchase a vehicle, you would not take the price tag in the car's window as face value. Have your broker outline every cost associated with the loan and rate you are being offered, and make sure that all of the terms and conditions are clear to you.
Getting preapproved for a mortgage will secure you the best rate available, usually up to 90 days, while you are shopping. It will also give you a clearer vision of your budget and keep you on track.
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