Here's one of our favourite MoneyWise how-to posts about locking in a mortgage as a first-time buyer! Any questions for us? Leave them in the comments below!
You’ve been to the open houses, explored various neighbourhoods and perhaps even checked out local schools before settling on the home of your dreams. Now it’s time to negotiate your first mortgage, a process which done right, could save you tens of thousands of dollars.
It may sound obvious, but make sure you know what you want before you negotiate your mortgage. You should be able to answer the following questions beforehand.
Determine which is better for you, a fixed or variable rate. To help you figure out what works for you, you should know the difference of fixed vs. variable as well as the factors that affect them.
This enables you to “lock in” a predetermined rate for a set period of time (term), with the most popular term being 5 years. A fixed mortgage rate provides you with the comfort of knowing what your monthly payments will be making financial planning and budgeting a whole lot easier.
These rates change monthly and are based on the mortgage lender’s prime rate, which is their main lending rate. Ex: If your rate is -0.1 and prime is 3%, your rate that month would be 2.9%. Anyone taking on a variable mortgage needs to be able to handle changes to their monthly payments, not only financially, but psychologically as well.
Figure out if you want an open or closed mortgage. If you are not looking to pay a massive lump sum in the coming future, generally a closed mortgage would be the best choice for you.
This is a flexible option that allows you to make large payments or pay off the entire mortgage without a penalty. However, there is a price for this added flexibility; open mortgage rates are higher than closed mortgage rates. Normally, the type of consumer who opts for an open mortgage wants to be able to pay off large lump sums before the end of the mortgage term.
This is the most common choice because very few people require the flexibility to pay off their mortgage before the end of the term. If you have a closed mortgage you will be penalized if you pay off the loan early and the charge can be quite large. Keep in mind that most closed mortgage products enable you to pay off up to 10-20% of the mortgage value once a year without any additional fees.
Once you’ve learned what’s out there, and what fits both your personal and financial needs, compare the market. This is such a crucial step that many people don’t take when shopping for a mortgage.
In fact, this step is so crucial that we’ll repeat it for you - compare the market. Researching the best rates can not only save you money on your mortgage, but it gives you bargaining power when talking to your bank or broker.
It’s always best to speak to a mortgage broker. Think of them as your mortgage personal shopper (that’s free for you to use might we add), they have relationships with a number of different lenders and will shop around for a great rate for you. They can help you determine what you can afford, what your options are, and to guide you through the process. What is a mortgage broker, you ask? She or he is a professional that is trained to represent you (the borrower) when you’re seeking financing from a lender (i.e. bank, credit union, etc.).
Once you’ve prepared the answers to these questions, you’re ready to negotiate.