Want to be a homeowner? Lucky for you — we say in our least sarcastic voice — mortgages are basically unavoidable. The good news? There are tonnes of tips and tricks to help you get the best mortgage rate possible.
To find five key tips that will help you seal the deal on a mortgage rate you won’t regret, we asked mortgage rates expert, Robert McLister, founder of RateSpy.com. McLister helped us get to the bottom of that integral list on what every home buyer needs to know when it comes to getting the best mortgage rate.
1. You’ll need a good credit score
A good credit score is key for buyers when it comes to getting the best mortgage rates. Credit scores range from 300 to 900, with 650 considered an average score. However, is 650 enough?
“Due to government regulations, a strong score is mandatory to get the best rate,” said McLister. “As a rough rule of thumb, you need at least a 680 to 720 score to get the lowest rates — and your odds are even better above 750.”
If you are under a score of 650 (although, McLister thinks 680 is the cut-off), it is important to do all that you can to increase this number before you choose a rate. To increase your credit score, pay your bills on time and ensure you have less than 50% of your credit limit on all credit cards. What does that mean? If you owe $600 on a Visa bill with a $1,000 limit, you may not be considered financially responsible in the eyes of the credit-reporting agencies (such as Equifax and TransUnion).
The key here is that a high credit score will equal a low-interest rate. Strong credit scores go a long way when it comes to the best mortgage rates.
2. Be aware of your debt-to-income ratio
A debt-to-income ratio (DTI) is used by lenders to measure an individual’s ability to manage monthly payments. It is calculated by dividing your total recurring monthly debt by your gross monthly income and expressed as a percentage. For example, if your recurring monthly debt is $1,000, and your gross monthly income is $5,000, your DTI is 20%. It is important to keep your DTI under 30% as anything above this amount causes banks to see you as a less capable borrower.
DTI plays a major role in determining how much mortgage you will actually get. A lower debt-to-income ratio will most likely get you a better mortgage rate, as your lender will not see you as a financial risk.
As McLister points out, it’s more difficult to get a good mortgage rate seen on aggregator or comparison sites if your debt load is too high.
3. Have a good career (yes, you read that right)
Lenders often look at their potential borrowers profession when providing options for a mortgage rate. What does that mean exactly? If you’re a doctor or dentist — lenders love you.
“Lenders love the earning power of professionals,” said McLister. “Being a professional can help you get approval exceptions when needed, and help you get a better rate on things like home equity lines of credit (HELOCs).”
Although professionals might get the best rates this doesn’t mean other professions are out of luck. McLister confirms that if you’re well-qualified, your debt ratios are good and you have a good credit score, you can still get the best possible rate — “or very, very close.”
4. Shop for the best deal over the best rate
Another important thing to keep in mind is that different lenders offer different deals on mortgage rates. Some lenders will offer the lowest interest rate but will charge a higher percentage of the loan amount as a processing fee, which will burden you with hidden costs. Other lenders will charge a slightly higher interest rate, but be transparent with all associated fees.
For those of us not familiar with the financial lingo, it can be overwhelming to determine what impacts the “terms and conditions” will have on our finances. In these situations, working with a licensed mortgage broker who can compare deals from a variety of lenders is always a good option. “It never hurts to get professional advice,” said McLister.
5. Check out comparison sites
There are hundreds of options available for mortgage rates across Canada, which means to find the best one can prove difficult. Comparison sites — also known as mortgage aggregators — are good options as they collect rates of most lenders and provide this information in an easy-to-read format to home buyers. This makes comparison sites a good first-stop when researching what is currently available.
“The best way to know if you’re getting a subpar deal is by comparison shopping,” said McLister. “The easiest way to do that is by using a rate comparison site or consulting a mortgage broker.”
Another tip from McLister is to compare your quotes online to the lowest rates available for that term and mortgage type – but keep your total borrowing cost in mind.
In the end, getting the best mortgage rate requires a combination of factors. You need a solid credit score, stable finances, and lots and lots of research. If these tips have shown you anything, we hope it’s that exploring all of your options before making a decision is critical to getting the best mortgage rate currently available. If all else fails, there’s always medical school.