Negotiate Your Mortgage Rate: A Few Tips

It doesn’t matter what you’re buying. If there’s a salesperson involved, the price is almost always negotiable.

That goes for mortgages too, so here’s some intel on how to win a better deal on your next one.

Step #1

First off, understand what you have to gain. Spending an hour of your time to save 10 basis points (0.10%) off your rate is worth it. That amounts to roughly $470 less interest over five years, for every $100,000 of mortgage (given a 25-year amortization).

On the other hand, calling every broker within 500 miles to save one basis point (0.01%) might mean you have too much time on your hands. Spend that time finding more favourable terms and features instead. Usually it’s the contract restrictions you face after closing that really cost you.

Step #2

Successful rate negotiators learn how the system works and they don’t fall prey to sales speak. Here’s a little Q&A to walk you through it…

******

Q: Will I be quoted the best rate up front?

A: More often than not, no.

'Maybe you should reconsider those place cards, Ms Harris?' (Negotiation talks/Good Guys/Bad Guys)Most lenders who employ “mortgage specialists” to push their mortgages (like big banks and credit unions) have what’s called “discretionary rates.” Those are unpublished rates available to strong borrowers and/or good customers.

In most cases, a lender rep can choose to give you a better rate in exchange for earning a smaller commission. But most of these reps don’t voluntarily quote below their “floor” rate (the lowest rate they can sell without asking for an exception from management). For this reason, if you like the lender and its mortgage terms:

  1. ask the mortgage specialist if he/she is paid on commission, and if so
  2. request they get a “pricing exception” from their manager to match a comparable rate you’ve seen online.

When working with a mortgage broker, know that all brokerages earn a finders’ fee from the lender. Some are willing to “buy down” your rate with it. A “buydown” is where they forfeit some of their commission in exchange for that lender reducing your rate. The brokers with the lowest rates on this website have devoted much of their commission to buying down your rate. Three cheers for them!

Brokers who don’t buy down rates typically claim to provide additional advice or service. Sometimes that’s true and you get what you pay for. Oftentimes, it’s just a broker with an inflated opinion of their value, or one who’s simply too busy to discount.

That said, one should never expect a “full-service” broker to offer deep discount online rates. That would be like Air Canada selling first class at coach prices.

 

Q: Do all lenders negotiate?

A:
  Nope. One example is where a lender has a strict everyday-low-pricing policy. In those cases, the lender may try to stick to its guns on pricing. But even then, they occasionally make exceptions for ultra well-qualified clients and/or those with big ($400,000+) mortgages.

Non-negotiating lenders rarely have the best deals anyway. Folks usually choose such lenders:

A)  out of convenience—especially when they already bank with the lender or live near a branch, and/or

B)  because they “trust” the brand.

Side note: These days, trust is overweighted as a lender decision criterion. There are no shady prime lenders left in Canada. You don’t have to worry about a lender going out of business and forcing you to repay your mortgage unexpectedly. Lenders now operate in a highly regulated environment. It’s ironic that so many people trust major banks, and then get bent over by their massive breakage penalties. (Note: This is not meant to slight banks, for whom we have great respect. It’s just a fact that their fixed-rate mortgage penalties are more punitive.)

Another less negotiable product is the Home Equity Line of Credit (HELOC). They tend to be much harder to negotiate unless the lender’s quoted rate is above the industry’s going rate (which is prime + 0.50%, as of this writing).

HELOC rates are more sticky because: A) they’re more costly for lenders (they require lenders to put aside lots of capital, which is expensive); and b) they’re more risky for lenders because they’re revolving (meaning the borrower can constantly re-borrow from them). As a result, lenders try hard to keep their HELOC profits intact.

 

google-76517_640Q: What’s the key to rate negotiation?
A:  
You’ve already figured it out! Research deals on a rate comparison website.

Rate sites shift the power from the lender/broker to you, the borrower. Quoting online rates shows a mortgage salesperson that you’ve done your homework and are serious about getting the best deal possible. In fact, it’s the single most important thing a mortgage shopper can do before engaging a mortgage provider.

Quick Tip: Use RateSpy’s <Email Rates> feature to email the top 10 rates for the term you’re interested in.

But beware, the best rates you see online have caveats. They often come with conditions like: minimum mortgage amounts, mandatory default insurance, short (30 day) rate holds, etc. Never try to use a rate that doesn’t apply to you as leverage with a lender. They’ll see through you like a pane of glass.

Lastly, research rates on a site that doesn’t require most lenders and brokers to pay lead fees. Traditional sites like RateHub.ca, RateSupermarket.ca and LowestRates.ca do just that. The problem is, when you exclude the majority of mortgage providers, you get far fewer lenders and brokers competing against each other. That, in turn, raises the odds that you’ll miss a great deal.

 

Q: What’s the #1 question I should ask?

A:  If you’ve done your homework and negotiated a leading rate, ask this one final question to your lender or broker: “Is the rate you’re quoting me the absolute lowest you can offer, given my qualifications?”

If they quickly say, “Yes, absolutely,” and you trust them and like their rate and service, apply and get the approval over with.

If they hum and hah, tell them that you need to do more research and you’ll get back to them. Then, email a few more providers and ask them to beat what you’ve already been quoted (for a mortgage with similar or better features). Provide this info in your rate request email:

  • Name
  • Property city
  • Home value
  • Mortgage amount
  • Type of mortgage (purchase, refinance or switch)
  • Type of property (condo, house, etc.)
  • Mortgage features you want
  • The credit score of all applicants

******

It goes without saying that you’ll pay more than just interest when you get a mortgage. You also need good advice on the lender’s fees, penalties and interest rates after closing (so you’re not stuck paying crazy rates if you increase the mortgage before maturity or convert from a variable to a fixed term). But never overpay for that advice, regardless of how long you’ve been working with your mortgage advisor. Business is business. Negotiate.


Sidebar: The above tips apply only to borrowers with good credit, provable income, reasonable debt ratios and marketable properties (i.e., not rural homes, former grow-ops, mobile homes, cottages, etc.). If that’s not you, call a broker who specializes in “alternative” lending.


16 Comments

  • Dev Power says:

    HI I am a big fan of your website and I always learn a lot from these posts.

    This question is regarding HELOC!

    I am currently with MCAP and paying very good rate on variable for last 2 yrs on 5 yr term 30 yr mortgage.

    I am in market for HELOC and they only do 70% LTV.

    SHould I go to big bank and ask for 65% – outstanding mortgage LTV with hope that at renewal time I can rate shop around and get my big bank to match or come closer on the rate being offered at that time.

    SOme how with MCAP what I found is they are very inflexible and if I will go with them for HELOC at renewal time I have to pay 2 discharge fees.

    Am I making any sense here.

    SO by going to big bank for HELOC I can have my HELOC there and then at renewal time I can get my mortgage there too.

    Please guide me since I was a new home owner at the time of my first mortgage 2 yrs ago and I have learnt a lesson that rate is not everything.( We are absolute SIDEBAR profile that you mentioned at end of article)

    • The Spy says:

      Thx Dev,

      A few quick points:

      * MCAP’s maximum loan-to-value on its revolving home equity line of credit (HELOC) is 65%. This is true for all lenders, apart from a few credit unions.
      * MCAP will allow another 15% in the form of an amortizing mortgage, for a total of 80% of the property value
      * Various factors can limit that total lending value to below 80% — as you’ve noted
      * Generally speaking, your best chance at a great deal is as a new customer
      * When you’re already with a bank (or any lender for that matter) they consider you “sticky” and are less prone to drop their pants on the rate.
      * One option for folks who need a HELOC before their mortgage matures is to get a secured LOC in “second position”
      * LOCs in 2nd are available from lenders like PC Financial, Manulife Bank, Meridian Credit Union and others.
      * The key is to choose a lender that covers most or all setup costs and has a decent rate (like prime + 0.50%)
      * Then, at renewal, the borrower can move both the mortgage and LOC to a new lender and have maximum bargaining power on rates and fees. (Note: There are refinance costs whenever you have a LOC and change lenders, but you can try to get the new lender/broker to pick some of those up.)

      For advice specific to your situation, you’ll definitely need to chat with an experienced broker. It sounds like you have a few wrinkles with your application that could affect your options.

      Cheers…

  • Avid Reader says:

    Some excellent advice in here. I kind of wish I had negotiated a slightly better rate at the time I got my mortgage, but there’s always the renewal to test out some of these negotiating tips

  • Cristina says:

    I just forwarded this info to my daughter, and thank you for helping the new buyer.

  • jacqui says:

    We have a variable rate with a big bank right now at 2.2. With the rates looking like they are going up in Canada, we are thinking of locking in.
    Since the Bank of Canada rate has not hiked, yet the banks have increased their 3, 4 and 5 year, shouldn’t they have a bit of leverage to negotiate with someone who wants to lock in? We are finding ours quite inflexible. Any tips on how to get the best rate to lock in?

    • The Spy says:

      Hi Jacqui,

      If you’re set on locking in with your bank, there’s a good chance you’ll save more by paying the 3-month interest penalty and changing lenders. Of course, it will depend on your remaining term and the rate you’re being offered.

      Lenders have little incentive to quote the best rates to their customers who want to lock in. They know people are averse paying penalties and would rather skip the hassle of switching. The best bet is to use math and competing offers as leverage and tell your lender you’re leaving if you don’t get a competitive rate.

  • Ridley Fitzgerald says:

    Thanks for the great information on mortgage rates! It’s interesting to think that the lenders who don’t negotiate have the lowest price. So is negotiating even worth it? When I buy my house this year, should I look for a lender willing to negotiate or not?

  • Pat says:

    Hello, I want to subscribe for this website to obtain most recent updates, where can i do it please?

  • The Spy says:

    Hi Pat,
    Thank you for your interest in receiving our updates. If you aren’t registered for an account already, you can simply click on “Become a Spy” in the top right corner of the page. During the quick (and free) signup, make sure to check off “I want RateSpy articles automatically emailed to me.” This will ensure you receive an email notification every time a new article is published.

  • Alisa Kim says:

    I just went into my bank (TD) and showed the mortgage specialist some of the fixed rates that are published on this site. He tried to scare my husband and I about using intelliMortgage saying that “B lenders” are not insured and that we could risk losing our house if the broker goes bankrupt. I wasn’t intimidated because I knew it was a scare tactic, but my husband is concerned about taking our mortgage anywhere other than a big bank.

    Thoughts?

    • The Spy says:

      Sadly, this brand of misinformation is often spread by underhanded (or uneducated) branch and mobile reps, Alisa.

      Online brokers like intelliMortgage, True North Mortgage, Butler Mortgage, Sigma, Spin Mortgage, Hatch Mortgage, Advent, MortgagePal, etc. are not lenders. That’s the first point.

      Secondly, they don’t focus on “B” (non-prime) mortgage business. Their core clientele is the highly qualified borrower who can get approved anywhere.

      Regarding insurance, virtually all brokers have errors & omissions insurance and are provincially regulated.

      As for going bankrupt, it’s not the broker lending the money, it’s the lender. Your broker could disappear tomorrow and it would have no effect on your existing mortgage.

      Almost all bank competitors are funded by the banks themselves. So essentially you’re getting a bank mortgage in a different wrapper, without the retail branch network, but with often better terms (e.g., more favourable penalty clauses, better prepayment privileges, etc.).

  • Bethany Birchridge says:

    I’m looking to buy my first home, so I wanted to learn more about how to negotiate mortgages. Thanks for the tip to ask for a pricing exceptions, as most lenders are willing to negotiate with well-qualified parties. I’ll give it a try. Do you have any other tips for choosing a mortgage lender?

  • Crystal Findlay says:

    Thank you for your very informative article! We currently have a fixed rate mortgage at 2.59% with 3 years left on our 5 year term. We need to re-finance to consolidate high interest debt. We plan to add an additional 120,00.00 to our mortgage (total will be 395,000.00), but the new interest rate will be 3.1 variable or 3.89 fixed, but with no penalty. Will mortgage lenders negotiate the interest rate on a re-finance? Is it worth asking? We certainly don’t want to pay more interest on the new mortgage than we are paying on the debt we are consolidating. We are also considering approaching another lender to see if they can give us a better rate, take over our existing mortgage and do a refinance.

    Thank you for your time!

    • The Spy says:

      Hi Crystal,

      It’s always worth asking.

      That said, lenders are somewhat less open to negotiation if they know you have to pay a penalty to leave. It helps to show them you have another offer that is materially better, including the rate, penalty and closing costs. Of course, if you have a better offer elsewhere and the mortgage terms are superior, you might want to just take it.

      It sounds like your lender has built the penalty into a new blended rate. Some lenders have “blend and increases” where you can add new money without losing your existing rate on the old money and without paying a penalty.

      A few questions for you: Which lender is this? What is your penalty? Do you have good credit and provable income?

      Cheers…

Leave a Reply

Your email address will not be published. Required fields are marked *