You’re probably asking yourself what is the best mortgage rate, right? Although it may seem like a pretty straightforward question, it’s quite complex. It can open the door to a number of other questions, making it almost impossible to respond to due to recent federal rule changes early this year.
Due to these changes, lenders’ costs have increased, along with the lowest mortgage rates. This specifically applies to refinancing amortizations:
- Over 25 years
- Million-dollar real estate properties
- Single-unit rental properties
- Mortgages (loan-to-value/LTV between 65.1 and 80 percent)
As a result of these changes, you need to prepare yourself with a list of questions to ask in order to secure the “best” rate in today’s mortgage market. Here are the questions that you need to ask:
- What is a mortgage term?
- Your mortgage term (or contract length) and your fixed or variable rate are the two factors that have the biggest impact on your mortgage rate. An example of this would be a five-year fixed rate, which costs 50 bps (basis points) – more than the cheapest five-year variable rate.
- What type of property do I want to buy?
- You may be looking to purchase a primary residence, a second home or a rental property. If you buy a property that you’re going to be renting out instead of residing in, than you’ll pay up to 25 bps more. The best and cheapest rates are usually found for second homes.
- Do I have adequate proof of my income to meet the requirements for a mortgage loan?
- If you can’t provide enough proof of your income, it’s unlikely that you’ll secure the lowest rate and more likely that you’ll pay at least 150 bps more.
- Which province and city is the property located in?
- No matter what anyone tells you, the province where the property is located matters. For instance, In provinces such as PEI, New Brunswick and Newfoundland the bps is nearly 30 more when compared to Ontario. City of the property also plays a role. If it’s located in a rural area then you could be looking at a minimum of 10 bps over the lowest rate due to the fact that if you don’t pay, it can be harder for your lender to sell if they have to foreclose.
- When is the closing date for my home purchase?
- For a typical 90 – 120 day rate hold you’d be looking at approximately 10 bps more, as opposed to a 30-day hold. So, the longer you want, the more you’ll have to pay.
- Do you need prepayment options or can you live without them?
- If you want to prepay on your mortgage by an additional 5 to 10 percent, lenders will charge 10 bps above the lowest rate. Currently, one of the lowest rates doesn’t allow prepayments.
- Can you accept refinancing restrictions?
- There is always the option to refinance early but your lender may charge to 10 bps more. You could be looking at 15 bps more if you’re cashing out more than $200,000 in equity.
- Can you pay a large penalty?
- Penalty stipulations for more than ¾ of fixed mortgage are far from fair. You’ll incur these if you break your mortgage before the term is up. Find out if your lender offers high or low penalty options. For lower penalty options you’ll be looking at around 10 bps more. This is much less than breaking it a high-penalty lender (i.e. a major financial institution).
This is not an exhaustive question list by any means, but it’s a great place for you to start. Of course they’re always exceptions such as asking for a renewal rate from your current lender. Just speak to your mortgage broker and ask them to send along your competitor rates. Then you won’t have to dive into all of these questions to secure the best mortgage rate.
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