What’s your Best Mortgage Rate?
One of the most common questions we encounter here at Oceanvale Mortgage and Finance is “What is your best mortgage rate?” Clients expect a quick and simple answer so that they may compare and rate shop effectively. The problem is, it isn’t that simple. There are a lot of inputs to consider when rate shopping, and nowadays the new regulations are making it more and more difficult to give an answer back with just the one question asked. Below are 20 questions we need to consider for a proper rate quote:
1. What is the term?
· The contract length (term) and rate type, fixed or variable, are usually the largest factors which will impact your rate.
· As of today, the cheapest five-year fixed rate costs 50 basis points (bps) more than the cheapest five-year variable rate. For clarity, 50 bps is the equivalent to .5 per cent.
2. Is the mortgage for your primary residence, a second home, or a rental/investment property?
· If it is a rental/investment property, there will be a premium added to your rate.
· For second homes or unusual properties there will most likely be a premium attached to your rate as well.
3. Can you prove your income, within the lender’s guidelines?
· If this is not an option, premiums of 150 bps or more may be added to your rate.
4. Where is the property located?
· The lowest one-year fixed rate in New Brunswick, Newfoundland, P.E.I, Northwest Territories, Nunavut, and Yukon are over 30 bps more than in Alberta, B.C, and Ontario.
· Whether the property is in an urban area or rural matters as well. If it is a rural property, you may pay 10 more bps than an urban property, maybe more. The reason being, it is harder for a lender to sell a property in the country where the population is lower.
5. When is the closing date?
· The shorter the rate is held the lower it will be. A 30-day rate hold will be less than a rate hold for 120 days.
6. Can you live with prepayment restrictions?
· One of the lowest rates possible allows no prepayments at all.
7. Do you want a portable mortgage?
· You’ll often pay 5 to 15 bps more to have a full 90 days of porting flexibility and access to bridge loans.
8. Can you live with refinance restrictions?
· For the ability to refinance early you can expect to be charged 10 bps more than the lowest rates.
9. Can you manage a large penalty?
· Lenders can offer both high and low penalty options. A low penalty mortgage will most likely cost you 10 bps more.
10. What type of property is it?
· Dependent on equity and other factors, high rise condos can cost 5 to 10 bps more than the average property.
11. Do you want good rates when you renew and/or if you refinance early?
· Some lenders try to give their renewing or refinance customers terrible “special offer” rates.
· For a lender that’s highly competitive after you close, often it will cost 10 bps more than the cheapest market rates to renew with them.
12. Do you have credit flaws like bankruptcy, consumer proposal, or unpaid debts?
· If you do, A lenders most likely won’t touch you. The lenders you will have to get funding from will charge 50 to over 200 bps more than the lowest market rates.
13. Do you have an offer on a property already or is it a preapproval?
· For a pre-approval you will be foregoing the best rates available. Expect to pay 10 to 20 bps more than the lowest rates if you haven’t purchased your property yet.
14. How big is the mortgage, as a percentage of your home value?
· If your Loan-to-Value (LTV) is 80 per cent instead of 65 per cent, you can end up paying at least 15 bps more than the lowest market rates.
· This may seem counter-intuitive but with an 80 per cent LTV you will pay up to 20 bps more than if you had a 95 per cent LTV. The reason being, mortgages less than 20 per cent equity cost lenders less because borrowers must pay for their own default insurance.
15. Can you pass the new government’s “stress test”?
· If you are applying for an insured mortgage, you have to prove you can afford a payment at the Bank of Canada’s five-year Benchmark rate. The Benchmark rate is 4.64% at the time of this post.
· If you cannot qualify on Benchmark but have at least 20 per cent equity, some lenders will let you qualify on you contract rate instead, but you will pay at least 15 bps more.
16. What is your credit score?
· Having a score less than 680, you will be subjected to higher rates. Some lenders will not even deal with you at all, others may limit their rate specials to borrowers with scores of 700 and above.
· Scores less than 680 will limit the amount of debt you can carry if you want a competitive rate.
17. Are you purchasing, refinancing or just switching lenders?
· A refinance can cost 15 to 50 bps more than the lowest market rate on a purchase.
18. What is/was the property purchase price?
· If the value is more than $1 million then expect a higher rate.
19. Is the mortgage already insured?
· If it is, and you are just switching lenders with no changes to the mortgage, you will save at least 10 bps compared to average discounted rates
20. How long of an amortization do you require?
· Many lenders are now charging extra bps for amortizations over 25 years.
This may seem a little long winded but it is important to understand that this list is by no means exhaustive. There can always be exceptions, so keep that in mind as well.
With the new federally imposed mortgage rules, such things like healthy credit, purchase price, and amortization lengths are more important than ever. With these rules, lenders now offer an extra array of rates for the standard 5-year fixed mortgage for consumers to consider.
The landscape of mortgage lending, which was already confusing for most individuals, now has been intensified in its complexity. Now more than ever, professional mortgage advisors are necessary knowledgeable assets needed to navigate through the ins and outs of the whole process and work on your behalf to find the best products and competitive rates. It takes a lot of consideration and Oceanvale Mortgage & Finance is happy to make sure that you are in safe hands and have all options presented to you. Please reach out to us with any questions you may have, we would love to provide you with clarity and confidence!