When Should I Shop for a Mortgage?

June 21, 2012

With record low mortgage rates and the possibility of a hike in the near future, many Canadians are wondering if they should be shopping for a better mortgage. So, when is it a good time to shop for a mortgage?

New Homebuyers

It’s important to start mortgage shopping and obtain a pre-approval the moment you decide that you are ready to buy, even if you don’t have a specific home in mind just yet. This will help narrow your home search and once approved, the interest rate offered by your lender is “locked in” for up to 90 days, which protects you from an interest rate hike in the future. Try not to take the very first offer that comes your way, shop around until you find a lender and terms that you are comfortable with.

Higher Mortgage Rate Holders

If your current mortgage rate is higher than today’s rates, it’s a good time to consider refinancing. Just keep in mind that there may be fees involved with switching to a new lender – such as penalty fees, legal fees, or the cost to have your home reassessed. Talk to your current lender before you do anything, they may be willing to knock a few percentage points off your mortgage to keep you as a customer, or may be able to blend your existing mortgage rate with the current rate to lower your payments without the hassle of refinancing.

Change in Financial Situation

Sometimes, due to circumstances beyond your control, you may have been forced to go with a higher-rate mortgage due to perceived risk. This risk could be due to a small down payment, bad credit, or other factors. While you may have taken the mortgage because you didn’t have a choice, if after a few years your circumstances have improved there’s no reason why you shouldn’t shop around for better mortgage terms. Keep in mind that as with a refinancing there will likely be fees involved, but if the rate difference is large enough, it should cover the costs in the long term through more affordable monthly payments, or a shorter amortization period.

Term Expiring

When your current mortgage is close to expiry, it’s a good idea to start shopping around. Surprisingly, accordingly to Manulife Bank only about 33% of Canadians bother to shop mortgage rates prior to renewal. Most simply choose to continue on with the same lender. Shopping around is highly advised, at the very least makes you aware of current market rates, so you can decide if you lender is offering you a good rate. You are the client, so don’t be afraid to negotiate or let them know you will respond once you have had a look at the competition. Once you find the rate you like, get pre-approved so you are protected from any short term rate increases prior to your renewal date.

So where should you shop for a new mortgage? You can start by comparing canadian mortgage rates online, phoning a broker, or making an appointment with a local lender – it’s your choice, but try to find at least three different providers before making your final decision. Just be sure that you are getting the best rates and terms you can find before you sign on the dotted line.