When it comes to your mortgage, there’s no need to settle for the most obvious options. When the time comes to buy a house, most Canadians rely on only the ‘big six’ banks to find a competitive interest rate. An HSBC study from last year shows Canadians are among the least likely to say they’ve looked around for a better mortgage. But just as you wouldn’t buy the first house you saw, you shouldn’t stick with your family-legacy bank at mortgage time ‘just because.’
Our research at Ratesupermarket.ca shows that alternatives to Canada’s ‘big six’ banks often offer much lower mortgage rates. These alternatives can include brokers and small lenders, many of whom are often more competitive.
For example, looking at a five-year fixed mortgage in the Toronto market and using Ratesupermarket’s online mortgage comparison tool, Sigma Mortgage (a team of mortgage brokers) is offering a 3.29 per cent interest rate, while an alternative bank, such as Tangerine, offers 3.54 per cent. Meanwhile, BMO is able to offer a 3.99 per cent interest rate, one of the lowest on offer from of the big six banks.
This same pattern applies for a five-year variable mortgage rate, too. True North Mortgage (also a team of brokers) is able to offer 2.70 per cent, while and Tangerine is offering 3.45 per cent. Of the Big 6, the one of the lowest is TD Canada Trust, with a rate of 3.50 per cent. With a little research, it becomes pretty clear the best deals aren’t found on Bay Street.
Why alternative sources can offer lower rates
There are a number of reasons why alternatives, such as teams of mortgage brokers or small-lender banks, can give lower mortgage interest rates than big banks. A mortgage broker can often find lower deals because they work in bulk. Small lenders, on the other hand, can often work with clients on a more personal level than a big bank, finding the mortgage that’s the right fit for you.
But, despite these savings, it’s important to look at the fine print. Sometimes the lowest rate isn’t the best deal for you and your family.
Some banks can offer prepayment privileges, meaning you won’t be penalized if you pay off your mortgage sooner than expected in an attempt to reduce the total interest you’ll have to pay on your mortgage. There’s also the importance of checking out the penalties you’ll face if you break your mortgage, such as if you have a divorce, you want to switch banks, or if you suddenly have to move. Finally, make sure you pay attention to any additional fees there may be, such as an underwriter fee, processing fee, etc All of these fees can really add up; for these reasons, the savings of a lower interest may not be as great as they first seem.
How to find your cheapest rate with the rights terms for you
The best place to start in finding the best mortgage rate is with an online tool, like the one right on the homepage of Ratesupermarket.ca. You can customize your search to location, mortgage type, down payment amount, and more, with the ability to compare rates from more than 30 mortgage brokers and lenders.
You can also work with a mortgage broker, but you should do your research on who you work with. Ideally you’ll want an educated, unbiased opinion on mortgage options, but there are some brokers who are paid to promote certain lenders and some out there with limited experience — neither of these options will usually help you find a better mortgage. Remember, you can always shop around for deals with numerous brokers to find the right one for you.
You can also, simply, just speak with your day-to-day bank and ask for a lower rate. If you’ve already done the research, such as using an online comparison tool, you’ll be in a good position to negotiate. During your search, be sure to look at how long each financial institution or broker is offering that rate for. Some will offer a rarte for up to three month, while others expire in thirty days.
The homebuying process can be stressful and overwhelming, and you have a lot of decisions to make; the last thing you may want to do is spend a lot of time shopping around for a better mortgage. But remember, even knocking off half a percent on your interest rate can potentially save you more a $1,000 each year.
*Mortgage Rates listed are accurate as of 22/02/19 at 4:00PM. Mortgage Rates listed are subject to change at any time and do not constitute financial advice. Please contact the supplier for more details.