Five Tips For Negotiating a Mortgage

Leigh Doyle, Toronto Star

When you’re buying your first house, negotiating for the mortgage can seem like the least fun and most complicated part of the process. But having no experience making one of life’s biggest purchases doesn’t mean you’re destined to pay the bank’s listed rate. Follow these five expert-approved tips to make you a better negotiator.

Know your long-term goals
Farhaneh Haque, director of Mortgage Advice for TD Canada Trust in Toronto says most first-time home buyers don’t realize the average person owns their first home for only three years. It’s important to think about where you might be in the next three to five years, she says. “Ask yourself: How long do you anticipate living in this property? Will your life change dramatically in the next few years? How stable is your income?” For example, if you know your employer wants to transfer you sometime in the next 18-months, a five-year, fixed-term mortgage isn’t the right fit for you. This step helps you identify what needs you might have so you know the characteristics to look for in a mortgage product.

Know your credit score
Before you walk into your bank, check your credit score. It’s a critical factor in determining your mortgage amount. If it’s good, work to maintain that high level. “You want to demonstrate to the bank that you are a good customer,” says Haque. If it’s not so good, talk to your bank about strategies to improve the score, such as making regular on-time payments on your credit cards or paying down existing debt.
[Be aware that the more times your credit score is pulled, your score will actually take a hit!  Every bank you go to will pull your score, so be careful.  If you use the services of a mortgage broker, however, your score is only pulled once, and your mortgage broker can use that when looking at multiple lenders, including banks.]

Be prepared
Once you have thought about your individual needs, do research before you go talk to your bank (or your mortgage broker), says Christopher Molder, a mortgage blogger with SonofaBroker.com in Toronto. “Find out what the posted interest rate is and look up mortgage options at your bank,” he says. You want to be prepared so you can have a discussion about options and what the ideal mortgage is for you. If you know the rate your bank and the competitors are offering, you’ll be able to tell whether or not you’re getting a good deal. Haque recommends using online tools and calculators to get an idea of what you can afford.

Don’t focus on interest rates
Of course you want to score the lowest interest rate when negotiating, but Haque says focusing on the percentage is the biggest mistake first-time buyers make. “People often don’t know what else to look for,” she says. Remember, mortgages are a product and the interest rate is only one feature. Discuss the other features of the mortgage, such as the payback terms, if you can make lump-sum payments or pre-pay the mortgage and what the penalties are for breaking the terms.

“Having the lowest rate can come with certain costs, like a lack of flexibility,” says Molder, so make sure the mortgage you want matches your needs. It might cost you a little more, but could save you thousands in the long run by avoiding penalties or being able to make extra payments.

Shop around
Before you sign any papers, talk to other mortgage specialists and banks, says Molder. “A bank can only offer you the products they have, which might not be a fit for you,” he says. A broker can shop your mortgage around for you instead of you having to visit five banks individually.