How to score the best mortgage and wipe out that debt

THINK OUTSIDE THE BOX:  It pays to do your homework before you lock into a mortgage or refinance your current deal.  You could wind up saving thousands of dollars while avoiding some serious pitfalls.

Struggling to pay the bills? Chances are your mortgage payments add up to the nastiest bill of all.

Canadian household debt levels are hovering near a record high and more than 70 per cent of that debt is money owed on mortgages.

The Bank of Canada has long expressed concern about mounting debt levels.

But a new report by Mortgage Professionals Canada suggests that everything is under control. The industry group argues there is no housing bubble and that “Canadians are highly motivated to pay off their mortgages as quickly as possible.”

To wipe out your mortgage as quickly as possible and relieve yourself of that debt, it pays to do your homework before you lock into one or refinance your current deal.

CBC News spoke to experts to find out how to score the best mortgage possible. You could wind up saving thousands of dollars while avoiding some serious pitfalls.

Tip #1: break out of your comfort zone

Sure, you can just march down to your bank and sign up for a mortgage. “It’s comfortable to go with what you know,” says Jackie Rosen, MoneyWise editor at mortgage rate-comparison site, RateSupermarket.

But, she warns “when customers do that, they possibly miss out on saving a lot of money.”

That’s because your bank may not offer you the best deal. Or your bank may not offer you the best deal unless you show up with a more tempting offer in hand from somewhere else.

It’s the same scenario when you’re renewing your mortgage, says Alyssa Furtado with another rate comparison site, RateHub.

When your bank sends you a renewal notice in the mail, “you can be pretty confident that they’re not sending you the best rate off the bat,” she says.

So, no matter what the situation, it pays to shop around. “You want to get multiple quotes to put that competitive pressure on your bank,” says Furtado. She adds that you might even wind up going with a better deal somewhere else.

To show the advantages of comparison shopping, Furtado crunched the numbers using current mortgage deals posted on her rate comparison site.

She looked at buying a home for $600,000 with a 20 per cent down payment with both a 2.29 per cent mortgage offered by a smaller lender and a 2.59 per cent deal offered by one of the big banks.

Furtado calculated that over five years, a homebuyer would save $6,752 by going with a rate that is less than a percentage point lower.

#2: Shop beyond the banks

Canada’s big banks not only provide a proven track record and a familiar name, but also allow customers to consolidate their finances under one roof.

However, if you’re willing to forgo some convenience and comfort, you might be able to score a lower mortgage rate with a smaller financial institution.

“Many of the smaller lenders, to take market share away from the banks, have to get more competitive,” says Furtado.

But even with the lure of a better deal, some Canadians are still hesitant to sign up with a lender they aren’t familiar with, worried about the company’s track record.

Furtado believes the risks are minimal. She says Canada has strict rules for anyone getting a lending licence. And, she points out, the customer is in a pretty comfortable position. “You owe them money, not the other way around.”

She suggests homebuyers consult with a mortgage broker so that they can explore all their options. She points out that broker services are free — they make their money from lenders who pay a commission if you sign up with one of them.

To note, Furtado is also the founder of RateHub, which owns the mortgage brokerage CanWise Financial.

#3: Look beyond the mortgage rate

While the lowest rate may appear to be the best deal, that’s not necessarily the case.

“A mortgage is probably your biggest investment,” says broker Peter Kinch with the Peter Kinch Mortgage Team in Vancouver. “I don’t think this should be treated like shopping for a couch at the Brick where you’re just trying to get the cheapest price.”

Kinch explains that sometimes the lowest rate comes with restrictive repayment privileges or more punitive fees for breaking a mortgage early.

So, if you try to end your mortgage early, explains Kinch, “it could end up being a very expensive cheap rate.”

For example, Bank of Montreal offers a low-rate “no frills” five-year fixed mortgage for 2.49 per cent. But customers can only repay a yearly lump sum of 10 per cent of the total mortgage without penalty, as opposed to the more typical 20 per cent.

Customers also can’t break the mortgage early unless they refinance by opting for another BMO deal or sell the property.

Furtado advises that people explore the conditions of a mortgage offer and then consider if any added restrictions might cost them down the road.

For example, if you’re expecting an inheritance soon, a 10 per cent yearly repayment stipulation may not be your best option.

There are other things to consider when getting a mortgage such as going with a fixed or variable rate.

While a variable rate is typically lower, customers also have to consider their comfort level. Will you lie awake at night knowing your mortgage rate could rise if suddenly the Canadian economy starts to improve and the Bank of Canada hikes lending rates?

And that’s the key with scoring the right mortgage. Customers need to shop around for the best rate offered in a mortgage deal that also best suits all their needs.

Sofia Harris, CBC News        July 1, 2016

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