by prepareforcanada.com | Oct 15, 2024

When searching for your first home, here are five tips to ensure you get the best mortgage rates in Canada. And, to get the best rates will require you to research so you know how to select a mortgage that’s right for you. Many newcomers arrive with savings to own a home and establish roots in Canada. And getting the best mortgage rate can save you thousands of dollars over the course of your mortgage.

Buying your first home in Canada is an exciting time to make your dream of homeownership a reality.  But at the same time, it can create stress and confusion. You may have questions about the real estate process in Canada, the lending process, or other important questions. And, buying a home is likely the largest and most important decision that you will make. So, it’s important to understand what’s involved, and how you can save thousands of dollars with the best mortgage rate.

A home purchase is a major investment. So, spend some time researching the housing market in Canada and the lending and real estate process. Do your research so that you’re confident with the decisions you’ll have to make every step of the way. And, this includes understanding the different types of mortgages:

• options (for example, open or closed mortgage)

• features

• restrictions.

Your down payment is money you pay towards your home purchase. It is deducted from the purchase price of your home. And, the remaining amount will be covered by your mortgage loan.

A 2019 survey conducted by Royal LePage revealed that 75% of newcomers arrive in Canada with savings to purchase a home. And the great news is that those savings can help you to get the best mortgage rate.

If you can pay 20% or more of the property value, you can get a conventional mortgage loan. But, with less than 20% of your down payment, you’ll get a high-ratio mortgage. And, high-ratio mortgages require home buyers to purchase mortgage default insurance. This mortgage insurance allows homebuyers to buy a home with less than a 20% down payment of the purchase price.

However, mortgage insurance only protects your lender. Therefore, it’s important to understand the terms and conditions of mortgage insurance if you’re unable to pay your mortgage.

Homebuyers require a minimum down payment of 5% of the home purchase price. So, if you have less than 5%, keep saving!

Clearly, when you have a bigger down payment it can save you money over the lifetime of your mortgage. But, if you have less than 20% of the purchase price, your lender will require you to pay for mortgage insurance.

There’s nothing like a poor credit score to stand in the way of getting the best mortgage rates in Canada. The minimum required credit score to get a mortgage in Canada is between 620 – 679. But, with a good credit score (usually between 680 – 724 points), you may get better borrowing rates.

Although, even if you have a good credit score, it’s wise to practice good financial habits to increase your ability to borrow money. For example:

• Spending less than 30% of your credit line

• Limiting the number of credit cards you apply for

• Paying all bills (phone, cable, hydro, etc) on time.

If you’re a first-time homebuyer, working with a mortgage broker can help you to navigate the complexity of mortgage products, options, and features. A mortgage broker can access a broad range of financing options.

Buying your first home in Canada can come with uncertainty about unexpected costs, affordability, or paying too much for your home. And, you’ll likely have questions that a mortgage broker can answer.

A professional mortgage broker can inform you about the variety of mortgage options and features. Because different mortgage options may be more suitable for you based on your needs and future plans. For example, you will need this information to help you make decisions related to:

• mortgage type: open or closed mortgage

• mortgage rate: fixed or variable interest rates.

In addition to knowledge and experience, mortgage brokers:

• Help you look at what is important to you and get you the best possible mortgage rate

• Discuss your down payment options and how to budget for a new home

• Help you understand the financial advantages and disadvantages of your mortgage options.

Lenders may have important restrictions related to each mortgage option, and that may end up costing you more money. Working with a mortgage broker can save you thousands of dollars in your overall costs.

When searching for your new home, it’s difficult to predict if mortgage rates will increase or decrease. So, a pre-approved mortgage can protect you against interest rate hikes while you search. With a pre-approved mortgage, you can lock in a mortgage rate for up to 120 days.

In addition, getting pre-approved will help you understand how much you can afford to buy your first house in Canada.

You can get a mortgage from your bank or a mortgage broker. However, working with a broker who is a subject matter expert with specialized mortgage knowledge can offer several advantages. For example, you can:

• Get a better rate with a mortgage broker than a bank because mortgage brokers get wholesale rates. Bank customers get retail rates. And yes, wholesale rates are lower!

• Get a wider product choice than working with a bank that will only offer the products they have.

A broker works with several lenders including top banks, credit unions, and other lenders to get you a more flexible deal. And with one single mortgage application, they get several lenders to “bid” for your business to get you the best possible rate.

In addition, a mortgage broker acts as a single point of contact who can manage everything from applying for the mortgage to negotiating your rate and disbursing the funds. All of this can create a stress-free experience, especially if you’re unfamiliar with the process.

• Your home purchase is a major investment. Ensure you get the best mortgage rate to help you save money over the lifetime of your mortgage.

• A professional mortgage broker can help you understand the different types of mortgages, features, and restrictions.

• A pre-approved mortgage can help you lock in your interest rate while you search for your dream home.

Establishing roots in Canada through homeownership is exciting! Achieve your dream with the best mortgage rate to save you thousands of dollars for your mortgage.

For more information and resources, visit our Banking in Canada: Financial First Steps Resource Page.