A basic principle for every consumer who looks out for his or her interests is shopping. When it comes to mortgages, every hour you spend searching for a lender means tens of thousands of dollars more in your pocket.
Therefore, in your current transactions, you need to get out of the comfortable ruts of the financial institution you do business with. You can choose from several sources of financing: financial institutions (banks, credit unions), mortgage brokers, fintech, alternative lenders.
The mortgage broker solution has its advantages: They shop for you. But it must provide you with offers from multiple lenders, tell you how many lenders it typically deals with, and tell you whether any of them account for more than 50% of its revenue.
You can also do business with virtual banks. They are just as secure as the banks we know, but because they don't have a branch network, their fixed costs are lower: so they pass these savings on to their customers. Some are subsidiaries of major banks such as Tangerine and Simplii Financial.
Fintech and alternatives
You can also choose a fintech that offers mortgage loans. The advantage is that all transactions are carried out via smartphone and are usually integrated into basic banking functions such as the checking account and sometimes discount brokerage. Approvals are granted quickly. And it's usually possible to talk to a human.
In general, private or alternative lenders (typically individuals or companies banding together) serve customers who do not qualify well with financial institutions because they have poor credit or irregular income.
However, some smart (and very savvy!) borrowers don't hesitate to negotiate more favorable terms with private or alternative lenders than with financial institutions, even if their credit report is perfect.
Discounts
Finally, several financial institutions offer you cashback when it comes time to sign your mortgage agreement. They argue that this money could be used to pay for the notary, the local certificate, the welcome tax or new equipment. Disagree politely.
If the banker has the means to give you a good amount of money, it is because he has the scope to offer you a better interest rate. Choose the best tariff, you save much more!
Advice:
- You must choose between a fixed or variable interest rate. Many buyers are afraid of variable interest rates that rise during times of inflation. However, various studies, including that of Professor Moshe Milevsky of York University, have found that variable interest rates over a long period of time (nearly 60 years) are the best choice in 90% of cases. But you have to have strong nerves.
- Also check your interest rate. The AMF offers a five-year interest rate savings simulator based on an interest rate reduction of between 0.25% and 2% for a mortgage of $100,000 to $350,000 (bit.ly/3usJIaI). The result is breathtaking. For a $100,000 mortgage, savings range from $1,168 (with a 0.25% reduction) to $9,306 (with a 2% reduction). For a $350,000 mortgage, we're talking about a reduction of $4,087 (0.25%) to $32,572 (2%).
- The average term of a mortgage contract in Canada is 33 months. Ask the lender about the penalties (and their costs) in the event of early termination (usually 5 years). Negotiate to remove or reduce these penalties or shorten the term (e.g. 3 years) to get a better rate.