Where To Find The Best Mortgage Rates

So you’ve decided it’s time to buy a home.  Maybe all of your friends are talking about the killing they made on that condo they bought a couple years ago, or maybe you’ve just always wanted a place that was really yours (or at least, one that would be in 25 years or so when you pay it off).

Whenever we hear people talking about buying a home, we usually hear about how much it cost and how the negotiation went.  You typically don’t hear about Canadian mortgage rates, specific mortgage companies, or payment terms.  It strikes me as a little weird that this is the fast.  These financial considerations can save you tens of thousands of dollars down the road, yet we give them little relevance compared to saving a few hundred bucks on the initial cost of a house and maybe the fact that a home buyer got a washer and dryer thrown in!

Is Your Regular Bank’s Mortgage Good Enough?

If you’ve been banking with the same bank for years, you’ll probably go them first to look at mortgage rates.  After all, they know your situation better than anyone, and with your long track record of doing business with them, they’ll cut you a deal, right?

NOPE. Your history with your bank will have almost no bearing on what kind of terms you get.  Everyone gets run through the same computer algorithm that looks at income, debt, credit score, etc., and determines what you can afford.  They might have a better grasp of these variables than anywhere else if you bank solely with them, so they might be able to process the paperwork a little faster but that’s about it.

Finding The Best Mortgage Rates

Roughly 90% of homebuyers start their search for a home online, and you should do the same for your mortgage.  Canadian mortgage rates are readily available, and a site like http://www.mortgagerates.ca or (our real estate category) that pulls in the latest data from multiple sources is a great starting point to negotiate the best deal.

Once you’ve figured out roughly what the best rate is, it’s time to consider other options with your mortgage.

Your Mortgage Is More Than Just The Interest Rate

You’ll have to decide between fixed or variable rates, open or closed, and various pre-payment options.  Making the right choice here can give your budget the right amount of flexibility, and it can also save you a lot of money in interest if either of those two aims are your main goal.

Fixed vs. Variable

Fixed rate mortgages are ones where the interest rate you sign up with continues for the term of the mortgage.  Don’t confuse the mortgage term with the amortization term.  The amortization term (typically 20-30 years) is how long it should take you to pay off your home.  The mortgage term is how long your current mortgage specifics will last until you have to renegotiate.  Mortgage terms are usually 5-10 years, but can be as low as 6 months.

Variable rate mortgages fluctuate with interest rates.  That means it’s possible that your rate will go up or down before your term is over.  You’re gambling a bit, but variable rates are usually the better deal.  Historically, variable rate mortgages end up being cheaper than fixed, but with current low interest rates, you’ll have to decide for yourself.

Open vs. Closed

Specific terms vary between lenders, but essentially an open mortgage allows more flexibility to pay back your loan faster.  Lump-sum payments and increasing your monthly payments are the typical ways to do this.

Closed mortgages have much stricter terms and you’ll be forced to pay a large fee if you want to break this mortgage.

Take Time To Research

Jumping in to a mortgage can be disastrous – always know your options.  I personally have a mortgage coming due at the end of this year and I plan on doing several hours of negotiations between credit unions and banks in order to get the best deal possible.  For a couple hours of work (which I consider fun since I’m a financial nerd) I make the equivalent of thousands of dollars just by cutting a few tenths of a percentage point off of my mortgage rate.  That sounds like a pretty good use of my time to me!

About Justin B

Justin is the co-owner and grammarly impaired author of My University Money and Young and Thrifty. If you like what you read, consider signing up for email updates.

5 Responses to Where To Find The Best Mortgage Rates

  1. Rachelle says:

    Any reason you don’t mention using a mortgage broker? I’m in the middle of my first home purchase and glad to have someone who knows the ropes. She didn’t save me much — I qualified for 3.99% for 10 years with ING and she got me 3.89% with a different lender. But she made it easy and the lender pays, so why not?

    • Teacher Man says:

      Rachelle, I’m not a big fan of mortgage brokers in many situations. I just don’t think they add enough value on average to warrant the cut that they take. With the internet today, the former informational balances of yesteryear have much less leverage. Have you happened to read the book Freakonomics? The lender technically pays, but couldn’t you use that as negotiation if they didn’t have to pay your broker for you? In my mind you actually pay, just through a detour instead of directly.

      • Rachelle says:

        Fair enough. I don’t think I would have actually done the digging around to find the lower rate, but maybe next time I will. Thanks!

      • Doug Boswell says:

        Mortgage agents can be important to mortgage seekers. The big banks love the perfect credit client but what about those that have some type of credit issue. When the banks slough them off a mortgage agent can find a lender (most times) for them.

        To clear a couple of misconceptions.

        Lenders offer various rates to mortgage agents determined by the volume they submit. Lenders have different tiers of rates dependent upon what tier the agent is on. That is where the rate offered to you comes from. An agent will try to get you the lowest rate possible because they want your business. Yes we are paid by the lender. However that does not affect your rate.

        Certainly you can try to negotiate with a bank directly but an agent can get you the same rate or sometimes even lower with the bank. You cannot directly negotiate with a lot of the lenders that mortgage agents can because you have to be licensed and with a brokerage. A lot of times it is these lenders that are offering the lowest rates on a particular day.

        In most cases you use an insurance agent to get you the best deal. You cannot bypass him/her because he/she are licensed and are able to deal with lenders.

        A mortgage agent costs you nothing (unless you have real credit issues).

  2. Michael says:

    I’m with Teacher Man on this one – mortgage brokers add very little value, if any. Using modern day technology the need for a mortgage is getting less and less. As mentioned you can negotiate directly with your lender since they will not have to pay a commission to a broker. The less middle men you have the more negotiating power you have. We saved $6000 on our new home purchase simply by negotiating since there were no middle men commissions to pay out.

    Anything a mortgage broker can tell you can easily be found online using basic research. Save yourself some money and cut out as many middle men (realtors, brokers etc) as you can.

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