It’s time to start bargaining!
It goes without saying that you would like to secure the lowest possible mortgage rate. With that being said, negotiating your best mortgage rate will entail some homework. This way, you’ll be able to work out a fair request. Here are a few tips on how to negotiate the best Canadian mortgage rate.
1. Be Honest
Your mortgage agent will ask you a number of questions to see what best suit your needs. Tell the truth.
2. Ask Questions
If you’re confused about something, don’t hesitate to ask. Only a small group of people actually understand the ins and outs of mortgages, so don’t be shy!
3. Pay Attention to the Details
Don’t just look at the low mortgage rate your agent is offering. What prepayment options are available? Is the mortgage portable? What happens if you need to move or break the mortgage contract? Are there any transfer fees?
4. Challenge the Mortgage Rate
Ask your mortgage broker to compare mortgage rates at banks, local credit unions, and non-traditional lenders. It’s his or her job to find the rate that best suits your needs.
5. Don’t Lie
Chances are your mortgage specialist will know and you’ll ruin the relationship you’re trying to build.
6. You Can’t Get What You Don’t Ask For
Ask your mortgage broker about additional offers and bonuses.
7. Be Realistic
It’s important to note that your mortgage broker isn’t a miracle worker. Sometimes he or she won’t be able to find a lower rate. With that being said, just because you’ve had some financial hardships in the past doesn’t mean you can’t try to get a good deal! Work with your mortgage broker in order to review all available options.
Can your budget handle a rate increase?
There is a bunch of talk about Canadian mortgage rate increases. The single biggest investment most Canadians make is their home; this represents almost 40 % of the average family’s total assets. The big problem at the moment is that many Canadians are living in homes they won’t be able to afford once interest rates start to rise. Right now The Bank of Canada‘s overnight rate is 1 % – this prime rate went above 20 % in 1981! What would happen to your home and mortgage if rates were to go up tomorrow?
Tip # 1: Pay Down Your Principal
If rates are increasing, the best plan is to lower your principle. The two most common ways to tackle this is by:
Switching from Monthly to Rapid Bi-Weekly
Switching from monthly mortgage payments to bi-weekly payments could help you save thousands of dollars in interest.
Making Lump Sum Prepayments
Try making lump sum prepayments or doubling up your payments whenever possible. This will help you tackle your debt quickly and efficiently.
Tip # 2: Plan for it Now
Open a savings account that you are able to pull from to pay for increases in your mortgage interest rate and payments down the road.
Tip # 3: Get Some Professional Advice
Speak with a mortgage professional about your options. You may be able to refinance now and lock in a low mortgage rate.
Tip # 4: Get Real About Your Debt
If you need to, downsize your home or consolidate your loans to protect yourself from rising interest rates. Most importantly, if you are shopping for a new home, calculate your affordability at a much higher interest rate – it’s the only way you can determine your chances of affording your home for the long term.
Would now a good time to break your mortgage and refinance?
This is a really common concern– when should I break my existing mortgage and refinance for a current best mortgage rate? It’s best to initially weigh out the costs.
Breaking your Mortgage
A Canadian mortgage rate agreement is a fully committed contract. There is an out clause, however it comes at a cost.
How Much is my Mortgage Penalty?
Typically the cost is determined based upon either three months worth of interest payments, or the interest rate differential (IRD).
Step 1: Calculate your IRD (Interest Rate Differential)
1) Use the principal balance and multiply it by the difference between your existing mortgage rate, and the new low mortgage rate.
2) Divide that number by 12.
3) Multiply that number by the remaining months in your term to obtain the approximate IRD owed.
Step 2: Calculate 3 Months of Interest
Just simply multiply the amount of interest you would owe on the present mortgage amount. Multiple this by 3.
Step 3: Find out the Penalty you Would Pay
When it comes to a fixed rate you would pay the greater of the IRD, or 3 months of interest. While in a variable rate, you would generally pay 3 months of interest. Contact your mortgage broker or lender to identify your specific required payments.
Step 4: Calculate Your Savings
1) Calculate the interest on your current mortgage rate.
2) Calculate the interest for your new mortgage rate.
3) Calculate your savings.
Step 5: Find out if it is Worth It
Decide if changing is worth it by comparing your expenses to your savings.
Understand why rates change and how you can adapt to increases.
There are many factors that influence the health of the economy: unemployment, inflation, consumer confidence, and the housing market are just a few. Let’s take a look at the ways these factors are able to impact your mortgage rate.
Factors Affecting: Fixed Mortgage Rates
A fixed best mortgage rate usually moves in alignment with government bond yields of the same term.
Bond Prices and Bond Yields (Negative Relationship)
When bond prices increase, bond yields decrease, and when bond prices decrease, bond yields increase. Bonds are typically considered safer investments than stocks.
Bond Yield: the return an investor will receive by holding a bond to maturity.
Bond Yields and Fixed Rates (Positive Relationship)
Typically fixed rates have a positive relationship with bond yields. They increase and decrease together with bond yields.
Stock Market is Booming– Bond Prices Decrease, Bond Yields Increase, Fixed Rates Increase
Whenever the stock market is booming, investors are far more likely to make a higher return on investing in equities (i.e. the stock market) than investing in bonds. Thus the demand for bonds decreases, meaning that the price of bonds decreases, and the bond yield increases. Therefore, fixed rates will likely increase.
Stock Market is Dipping– Bond Prices Increase, Bond Yields Decrease, Fixed Rates Decrease
When the Canadian economy becomes less stable, investors generally have the tendency to invest in safer financial commitments such as bonds.
Factors Affecting: Variable Mortgage Rates
The overnight rate changes the cost of lending/borrowing short-term funds and therefore affects the Prime Canadian mortgage rate. The Bank of Canada regularly updates this rate based on economic conditions.