How to get the lowest Mortgage Rates in Canada
Buying a home is an exciting milestone, but it can also be stressful, particularly when securing a mortgage. The interest rate on your mortgage will significantly impact your monthly payments and the total amount you will pay over the life of the loan. That's why it's crucial to find the lowest mortgage rate possible. In this blog post, we will discuss tips on getting the lowest mortgage rates in Canada.
Shop around: The first step to getting the lowest mortgage rate is to ensure you're not just walking in the doors at the bank as a price taker. Different lenders offer different rates, so it's essential to research and compare offers from other lenders. Using a mortgage broker can also be helpful as they can access multiple lenders and find you the best rates.
Improve your credit score: Your credit score is one of the most critical factors in determining if your mortgage rate will be with an A or B lender. A credit score over 600 typically means a lower interest rate. The ideal target for a credit score in Canada is between 680-900. You can improve your credit score by paying your bills on time, keeping your credit utilization low, and not applying for new credit in the months leading up to your mortgage application.
Improve your Income and pay taxes: If you are a small business owner you may want to avoid paying tax as much as possible. If you’re writing off as much as possible in your business and not paying yourself and then claiming that income on your personal tax returns it may be difficult to get a mortgage at an A lender. Another example might be someone in the restaurant industry that receives a lot of their income as tips in cash. If you’re not claiming that cash as income, it will be very hard to prove to the lender that you are eligible for an A mortgage. A result of not having any provable income is typically needing to use alternative financing or a B lender to obtain mortgage financing. Improving your income might make you eligible for a lower mortgage rate.
Increase (or decrease) your down payment: Mortgages with a down payment of LESS than 20% typically secure the very best rates, but mortgages with 35% or MORE down payment are also eligible for very low rates. Consider a down payment between 5% to 19% or over 35% to secure the best mortgage rate.
*Protip: Mortgages with less than 20% down payment require default mortgage insurance. Make sure to have your mortgage broker run the numbers to determine if paying default mortgage insurance outweighs the benefits of your lower mortgage rate.
Consider a LONGER-term mortgage: at the time of writing, a five-year fixed mortgage rate is significantly lower than a three-year fixed mortgage rate. To achieve the lowest rates, consider a longer mortgage term. As our market becomes less volatile in future years, shorter terms may be less expensive options than longer terms. It's important to evaluate options for different term lengths each time to consider getting a new mortgage and choose the one with the rate and term that works best for you.
Consider a 25-year amortization: Most lenders add a premium for a 30-year amortization. If you've got a down payment of 20% or more, you can choose between a 25 to 30-year amortization. If you're trying to achieve the lowest rate, choose the 25-year amortization to save about 0.10% on your mortgage rate.
Lock in your rate: Mortgage rates can fluctuate daily, so it's crucial to lock in your rate once you find a good one. This will protect you from any rate increases before your loan closes. Rate holds are necessary when shopping for a new home or building a new one. Rate holds can be as long as two years or as short as 90 days. Ensure you're clear with your mortgage broker about your exact intentions with your deal so they can hold a rate that best suits your mortgage goals.
In conclusion, getting the lowest mortgage rate in Canada requires research and careful consideration. You can get the best deal by shopping around, improving your credit score, increasing your down payment, considering different mortgage terms and amortizations, and locking in your rate. Remember, even a slight difference in interest rates can add up to significant savings over the life of your mortgage. Check out Spire's mortgage calculators to run some scenarios and decide what rates and amortizations fit your monthly budget!
