It Pays to Plan Your Mortgage Renewal or Home Purchase
Posted: Monday, November 09, 2009
by David Cooke
Mortgage Alliance Co. of Canada
If you're renewing your mortgage or buying a new home, the answer to rising interest rates is to fight back using every trick in the book. Five-year fixed mortgage rates recently hit a six-year high, and variable-rate mortgages could start moving up as soon as January 1st. Housing prices are so high these days that even a quarter-point of extra interest could cost you hundreds of dollars a year and possibly thousands over your mortgage term.
1. If you face a renewal or are in the market for a new home in the months ahead, get a rate guarantee immediately.
A rate guarantee locks in the best rate you're qualified for right now for a pre-set period of time and protects you, no matter how much rates increase in the meantime. Typically, a mortgage broker can hold an interest rate for 90 to 120 days.
Given that more increases for fixed-rate mortgages are possible in the months ahead, it's a no-brainer move to contact a mortgage broker and lock-in a rate. If you're planning to buy a new home, get a rate commitment (also known as a pre-approval) even before you start looking. And, if your plans change for any reason, it can easily be cancelled with no cost or obligation.
When renewing a mortgage, don't wait for the bank to contact you with one of those perfunctory notices sent by mail. If you do, you'll probably find that you have only a short time until the renewal date and are thereby hostage to the mortgage rates of the moment.
Rate guarantees apply to fixed-rate mortgages. Variable-rate mortgages are priced off the prime rate, which in turn is pegged to the Bank of Canada's overnight rate. The pertinent issues with a variable-rate mortgage are the size of the discount off prime, and the size of the discount you get if you use your option to switch to a fixed-rate mortgage.
2. Non-bank lenders are slower to raise rates.
Whenever there's a rate increase, the banks usually move first. Many non-bank lenders will take a wait-and-see attitude -- this is how they book a lot of their business.
A mortgage broker shops the rate market for you to find lenders who are holding off on matching the banks on the latest mortgage increase. Move quickly though as the gap between the banks and their non-bank competitors may not last more than a day or two.
3. Shop for rates more carefully than you ever have before.
The range in mortgage rates between lenders these days is incredible. In early November 2009 (at time of writing), rates for five-year mortgages ranged as high as 5.78% at some banks to as low as 4.45% at a handful of non-bank lenders. It's possible for you to rate-shop online to a certain degree; however, you may not qualify for those rates based on your personal income and credit history. Bear in mind that mortgage brokers have direct access to over 50 Canadian lenders, some of whom deal exclusively through mortgage brokers. As a result, a mortgage broker can pre-qualify you and secure the best discounted, no-haggle rate based on your personal circumstances.
4. Exploit other avenues for shaving your mortgage rate.
You may save further on your rate if you're willing to have a rate guaranteed for less than the typical 90 to 120 days. For example, a few lenders offer a quick-close five year fixed-rate, which is lower than their standard rate, if the new mortgage funds within 30 days. Additionally, there may be lender promotions available (typically, for a limited time only) that offer you further rate discounts on one or more of their mortgage products.
5.Use the services of a mortgage consultant
If you try shopping on your own you will damage your credit score. Every time you for a quote the lender will make a credit bureau inquiry. Mortgage consultants make one inquiry and can re-cycle your report showing it to multiple lenders. In addition, we know which lenders are offering the best rates and terms for your particular situation.
For more information or to apply online 24/7 visit http://mortgagealliance.ca/davidcooke
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