Can you negotiate your mortgage?

This article has been updated from a previous version.

Everyone loves a good deal. And while most homebuyers are confident haggling over the purchase price for a home, they often overlook the opportunity to negotiate their mortgage rate.

Many Canadians mistakenly think they either have to accept the first rate offered or switch lenders to score a better deal. However, by not negotiating, they could be leaving a considerable amount of money on the table in the long run.

When should you negotiate your rate?

Whether you're just starting the process of applying for your first mortgage or well into the paperwork for your fourth, taking care of your financial health can help you acquire the mortgage you need at a rate you want.

There are three key times to consider negotiating your mortgage rate:

When applying for a new mortgage: This is an ideal time to negotiate since multiple lenders will compete for your business. Shop around and see if your preferred lender can match or beat other offers.

When renewing your mortgage: A few months before your mortgage term ends, you can expect your current lender to send a renewal letter. Instead of automatically renewing, explore other offers.

When rates are falling: If mortgage rates drop, you might be able to refinance your mortgage for a better rate before your term ends. Be sure to check any prepayment penalties that might apply when refinancing mid-term.

How to set yourself up for success when negotiating your mortgage rate

Here are some ways you can negotiate the best deal for your home.

Have a good credit rating

Mortgage lenders consider a few different factors when assessing your ability to carry a mortgage including your income level, monthly debt load, and credit history.

Here are some tips to improve and maintain a good credit rating:

Pay your bills on time

Your payment history is a significant factor in your credit score. Consistently paying your bills on time can positively impact your score.

Keep credit utilization low

Try to use less than 30% of your available credit. High credit utilization can negatively impact your score.

Limit new credit card applications

Each new credit application can result in a ‘hard inquiry’ on your credit report. Hard inquiries can make a slight dip in your score, usually by a few points. Having too many on your report may indicate that you’re seeking more credit than you can manage.

Diversify your credit mix

Having a mix of credit types, such as credit cards, car loans, and a mortgage can improve your score.

Keep older accounts open

The length of your credit history matters. Keeping older accounts open can help improve your score.

Other than this, late or missed payments and filing for bankruptcy can all negatively impact your credit rating, and in turn, reduce your chances of securing mortgage approval.

Increase your down payment amount

If your credit history isn’t perfect, consider making a down payment that is more than the minimum required. This helps lenders view you in a more favourable light.

For first-time homebuyers in Canada, while the minimum 5% can be tempting, a more substantial down payment can have quite a few benefits:

Improved mortgage approval chances and better rates

A larger down payment reduces the lender’s risk, making it easier for you to get approved and shows better financial stability.

Lower mortgage amount

By increasing your down payment, you can reduce the total amount you need to borrow which means a smaller mortgage, translating to lower monthly payments and less interest paid over the life of the loan.

Avoiding CMHC insurance

If you put 20% or more down, you can avoid the cost of Canada Mortgage Housing Corporation (CMHC) insurance, otherwise known as mortgage default insurance. This can save you thousands of dollars.

Related: Should you buy a house right now or wait until interest rates come back down

Look for discretionary rates instead of advertised rates

When it comes to mortgage rates in Canada, there are often more options available than at first glance.

Advertised rates

These are the rates a bank promotes on their website or in their branches. They are standard rates available to the general public.

Discretionary rates

Also known as 'hidden' or 'discounted' rates, these are lower rates a bank or lender can offer at their choosing - or discretion. These are often available to potential borrowers with strong credit ratings who are making an above-minimum down payment.

How to score the best mortgage rate for you

Before you start discussing lending rates, spend a little time comparing Canadian mortgage rates. This will give you an idea of the current market rates and what different lenders are offering. Next, follow these steps:

1. Negotiate with lenders: Approach lenders and ask for their best rate. Mention that you are aware of their discretionary rates and are looking for the lowest rate they can offer.
2. Present your case: If the rate offered is higher than expected, present your research as leverage. Highlight factors that make you a desirable borrower such as a high credit rating and a substantial downpayment amount.
3. Evaluate offers: If the rate is still higher than you're prepared to pay, let them know. If they are unable or unwilling to budge, you may need to look elsewhere. Alternatively, they may offer different features that offset the higher price such as cash-back offers.

How much can I save by negotiating my mortgage rate?

Let’s consider a scenario where you’re offered a five-year fixed mortgage for a home priced at $900,000. With a 20% downpayment over a 25-year amortization period, the total mortgage amount is $720,000.

Assuming the rate you’re given is 5.00%. This would result in monthly payments of $4,188 which over the five-year period costs you $251,280.

If you were able to negotiate a rate of 4.75% for the same home, you would spend $4,086 in monthly payments and a total of $245,160 over the five-year term.

While it might not seem like much on a monthly basis, you’ll save $6,120 in just the first five years.

Negotiation is not always easy, but it can mean significant savings. Remember, sometimes, to get the best deal, all you have to do is ask for it.

Read next: How to deal with the pressures of homebuying?