According to the most recent CMHC Mortgage Consumer Survey, Canadian home buyers are increasingly looking more to the internet for mortgage information. The recent phenomenon of rate shopping sites has definitely shaken up the mortgage industry. As a mortgage broker that has never played the rate game “Rate Shopping” sites are here to stay and this post was created for consumers to help them more properly search online for a mortgage. Simply typing “Best Mortgage Rates” in Google isn’t enough when it comes to making one of the biggest purchases of your life.
Here’s how to search for a mortgage online more effectively
Check your own credit
You can search for the lowest mortgage rates all you want, but if your credit is lousy you will have no chance of actually receiving those low rates. 6-12 months before you plan to purchase a home check your own credit. You can check your credit bureau for free through Equifax, but the free credit report doesn’t include your credit score. This score is what lenders base their qualifications on. You can search online for the lowest rates till you’re blue in the face but if your credit score isn’t up to par you will never qualify.
Checking your own credit bureau will not affect your score and you can purchase a copy of your credit report with a score on Equifax.ca for $23.95. Don’t waste your money on signing up for the monthly subscription. You just need to check your bureau about once a year.
You will ideally want your credit score to be above 650, better yet over 700. Some lenders will require you to have a higher score to qualify for the absolutely lowest rates you see advertised.
Checking your score early will allow you to catch any errors and if your score isn’t within the 650-700 range contact me and I can go over your credit bureau with you and offer some suggestions to increase your score so you’ll be ready to get a mortgage once your credit has improved or offer alternative financing options.
With your credit bureau in hand and a good credit score you can now be confident searching for “Best Mortgage Rates” on Google.
Don’t shop too much
But isn’t shopping around good? Not always. Every time you apply for a mortgage through a different person or company your credit will be checked. While checking your credit yourself doesn’t affect your score, shopping around too much for a mortgage can impact your credit score and make it so you won’t get approved. Trust me I’ve seen it happen! Do your research first and then decide to work with just one mortgage broker.
Is my employment situation unique?
It’s no secret that the mortgage rules have changed. The rates advertised on rate shopping sites assume you have excellent credit, full time employment and can provide full income documentation to support your application. If you are Self Employed or will have trouble providing certain documentation be prepared to potentially pay higher rates than those advertised on rate sites.
Know who you’re dealing with
Rate Shopping websites work on essentially a reverse auction type of format. Mortgage Brokers bid down on rates from cutting their commission or offering rate specials from lenders. The mortgage broker that advertises the lowest rate (and pays for the advertising) moves to the top of the list. (If you’re curious how much mortgage brokers make and how we are paid check out this post)
Just because you see someone on the top of the list doesn’t mean they’re the best mortgage broker. It essentially means they are paying the most to be shown on the top of the site and also making the least amount of money to do so. You still need to put some research into how they operate.
Don’t just research rate, research who you’re dealing with as well.
This list is by no means exhaustive but you should at least consider the following:
Know your time frame
In the Canadian mortgage market many lenders offer what’s called a “Quick Close” mortgage rate. Quick close mortgages have the lowest rates available but also offer the shortest rate hold period. The shortest “Quick Close” mortgages have a rate hold period of 30 days. When you see a rate offered online, there’s a pretty good chance that it is a quick close mortgage rate. If your purchase or mortgage renewal is more than 30 days away you might be out of luck receiving these rates. When the rate hold period is between 90-120 days be prepared to lock into a rate that will be slightly higher.
Do you have a live deal?
More industry lingo here. A “Live Deal” is when you have an accepted offer on a purchase or are switching or refinancing within the rate hold period. If you are still looking for a home or your mortgage renewal is more than the rate hold period away you cannot apply for these rates. Be prepared to be offered slightly higher rates if your closing date or mortgage renewal is 60-120 days away from when you apply.
Lenders offer the best rates with shorter closing periods because they have less of a chance of not funding the mortgage. The reasoning is if people are shopping online for rates they do not have loyalty to a particular lender and will move lenders if a lower rate is available elsewhere. With a rate hold period of only 30 days you really don’t have time to look elsewhere once the process is started.
Know the fine print
If you’re after the absolutely lowest rates on the market you will most likely give up some of the flexibility of the mortgage. This can come in both the rate hold period as discussed above but also in the terms and conditions of the mortgage. Some of the mortgage rates advertised might be No Frills mortgages which may have limited prepayment privileges or in the case of RMG’s Low Rate Basic mortgage which limits portability and can potentially have large penalties should you break your mortgage early. While there is nothing wrong with choosing a no-frills product, just ensure you are aware of the limitations.
Research the lender, not just rates.
Here’s three of the most important questions to ask:
Beware of the up sell
I personally know a mortgage broker that advertises on rate shopping sites with the goal of up-selling the client to a more lucrative product. If you’re clicking through someones site and then find a totally different rate advertised or when you call to receive that rate and the discussion shifts to trying to push you into another product it’s probably in your best interest to work with someone else.
And now the sales part…. The mortgage industry is constantly changing. Advertising on a rate site can’t replace what comes from experience. All mortgage brokers have access to pretty much the same rates. Some just choose not to advertise for certain reasons. If you decide to work with someone who advertised on a rate shopping site that’s fine. Just make sure you ask the right questions and do at least the minimum research outlined in this post.
Comments or questions? Contact me anytime or leave a comment below.