April 12, 2010
You know when you’re sitting at a dinner party and one person says something like “My mortgage rate is [insert some ridiculously low percentage here] locked-in for 6 years” and you’re thinking “How in the hell did they get that rate?” Well, here’s some tips on how to become the braggart rather than the jealous onlooker…
- Allow five business days for financing your offer— buyers are sometimes pushed to get preapproved, but really they’re just glorified rate holds. Your financing conditions should give you time to arrange a concrete approval before you commit to your purchase.
- Begin with defining a term— oftentimes the term can affect the total interest you pay more than the rate itself and get your mortgage specialist to run a rate simulation to show how much you would actually pay.
- Don’t be afraid to negotiate— if you have good credit, try to get a rate better than the best rate posted in your province (see GlobeInvestor rates for a starting point).
- Go short— instead of choosing a long-term amortization, consider the shorter terms:
A 35-year amortization will lower your monthly payments 16 per cent on a 4-per-cent, $250,000 mortgage. However, the total interest you’ll pay increases 32 per cent versus a 25-year amortization. The Globe and Mail
- Use your RRSPs for your down payment— I know it’s always scary to take money from your RRSP, but it CAN be a fiscally prudent move. The CRA will not consider the money withdrawn taxable if you ensure to repay 1/15th of the amount withdrawn each year. One caveat, you have to qualify as a first-time home purchaser.
- Don’t pay for stuff you won’t use— there are a lot of extra bells and whistles you can be roped into, but if you don’t need ’em, don’t get ’em! Examples include paying for a capped variable rate mortgage (a floating rate with an upper maximum), 10-year terms, lump-sum payment options you won’t use etc.
- Consider a hybrid— sure, using a hybrid that’s a mix of variable and fixed rates is complicated, but don’t shy away from using them because you’re scared it’ll be too confusing! The products were created to mitigate interest rate risk for homeowners, so use them!
So there you have it folks! Happy negotiating.