In last week’s post, smart spender Ho Tek and partner at Domus Student Housing, walked us through the difference between a mortgage broker and a bank. He also helped us understand which is best suited to certain circumstances.
When it comes to scoring a great deal, Ho points out that in both cases the rate is always up for negotiation and you should never accept the posted rate or first rate they give you. “This is a big purchase and you’re committing to it for a long time, so putting in a little extra work at the beginning helps you save money down the road.”
But for many first-time home buyers who haven’t done this before, asking for a lower rate can be intimidating.
Ho shared some tips with us on how to negotiate a mortgage rate:
If you don’t ask, you don’t receive.
Remember that this is a business transaction and your bank or broker can always do better than the posted rate, even if it’s just by a little. “It absolutely does not hurt to ask.”
Know your own situation and make a case for it.
It’s your job to make a case for how great of a borrower you are. Ho is often surprised that people don’t know their own credit score. “You don’t want to pull your score too often, but you should know where you stand. If your score is above 600, you’re OK. If you’re above 700, you’re a favourable borrower. The better you present your situation, the more leverage you will have with banks and brokers.”
Do your research ahead of time and ask for a specific rate.
Instead of just asking for a lower rate, Ho advises to come armed with a specific rate that you’re after. “Google is your friend. Look up Canadian mortgage rates beforehand and compare what you’re being offered to those. Keep in mind that variable and fixed rates will differ, as will different lengths of terms, so always compare apples to apples.”
Be realistic in your negotiation.
In any negotiation, Ho says it’s important to be realistic and fair. “If you’re asking for your rate to be cut in half, you won’t get that. You may find an unbelievable rate online from a smaller lender and find that your bank won’t match that. That lender may not be accessible to you, but presenting the rate may help you get a few points knocked off of your rate.”