When it comes to getting a mortgage, there’s a lot at stake. Mortgage rates can vary quite substantially depending on the factors listed below. The difference can mean a much higher or lower monthly payment and tens of thousands of dollars in interest payments over the life of the loan. Here are four tips to getting a good mortgage rate.
Set a Big Down Payment
It’s largely recommended to save at least 20 percent down before you sign for a mortgage – this will ensure you will get the best mortgage rates in the business. Simply put, a mortgage will be decided based on the risk factors involved. A loan with just five percent down will carry a much higher interest rate than a loan with 20 or more percent down. It’s also important to be aware that a low down payment may lead to having to pay private mortgage insurance.
Make Sure you Have Cash Reserves
Cash reserves are measured in terms of the number of months worth of house payments you have saved in cash. This can include money saved in checking or savings accounts, money market funds, or certificates of deposit. However, it generally does not include money in an RRSP (since it can only be withdrawn after paying fees). The typical requirement for cash reserves on a mortgage is two months, but be aware that higher risk loans typically require more in cash reserves.
Find the Best Mortgage Rate
Before you go searching high and low, start with your bank or credit union. It’s very likely that one or both will offer a preferred rates for customers that will be lower than what’s offered to the general public. Furthermore, since you’re a familiar client, there’s a better chance you will get approved will a lower interest rate. If you are still not satisfied, RateHub.ca is good online resource where you can compare mortgage rates based on your homebuying plans.
Be Financially Prepared
Applying for a mortgage can be stressful, but it becomes a whole lot easier when you have your ducks in a row before you get started. Take some time to improve your credit, pay down some debt, and start saving. It’s not just about shopping around, getting the best mortgage rate is also about getting your credit and finances in the best shape possible.