Mortgage Basics

How To Get The Best Mortgage Rate

How To Get The Best Mortgage Rate
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  • nesto
| Dec 9, 2018
Reviewed, Jun 9, 2023
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    Are you looking to buy a home? One of the most important factors to consider when taking out a mortgage is getting the best rate. With more and more people trying to get into homeownership, navigating the mortgage market can be tricky. To help make sure you are able to secure an excellent rate, we have put together 10 tips that may offer some assistance in securing an ideal mortgage rate for your new home purchase.


    Key Highlights

    • A high qualifiable income shows the lender that you make a stable salary and that you will be able to make your monthly mortgage payments on time.
    • Having a good credit score and a low debt-to-income ratio demonstrate your ability to pay off your mortgage.
    • Taking advantage of special offers from lender, as well as government assistance programs will help you save money on your mortgage and reduce your interest.

    Are you a first-time buyer?

    10 Tips To Find The Best Mortgage Rates

    1. Increase income stability

    When it comes to securing a low mortgage rate, income stability is key. Lenders want to know that you’ll be able to make your monthly mortgage payments on time and in full. If you have a fluctuating income, you may struggle to find a lender willing to offer you a competitive rate. That’s why it’s important to take steps to increase your income stability before you start shopping for a mortgage. There are many ways to do this, such as building up your emergency savings, reducing your debt-to-income ratio, and diversifying your income streams.

    By taking these steps, you’ll be able to show lenders that you’re a reliable borrower and increase your chances of getting the best mortgage rate possible.

    2. Shop around for the best deal

    This one is simple: shop around! The more lenders you approach, the more likely you are to find a lower rate or secure a larger sum for your mortgage. Different lenders will have different special offers available to borrowers, especially during mortgage season or around holidays. This goes for renewers too; don’t just stay with the same lender when it’s time to renew, shop around for better offers!

    3. Negotiate home price

    When it comes to buying a home, negotiating the price can play a major role in securing the best mortgage rate. Many homebuyers may not realize that by getting the price of the home down, they can potentially save thousands of dollars in interest over the life of the loan. To effectively negotiate the price, it’s important to do your research and gather information on comparable homes in the area. Additionally, having a strong pre-approval letter from your lender can give you greater leverage in negotiations.

    4. Improve your credit score

    It boils down to this: the better your credit history, the lower your rate will be. As a rule of thumb, with a credit score of 700 or more, you should qualify for the best rates available.

    Lenders don’t want to lend a sizable amount of money to a borrower who has a history of defaulting on his loan payments, or one who carries heavy credit card debt, for example. If lenders do decide to lend this person money despite his history, they will most likely protect themselves by offering a higher interest rate.

    When aiming for the lowest rate, make sure your credit profile is as clean as possible. This means paying off your credit card bill in a timely manner and staying within the 30% of your credit limit.

    5. Take advantage of discounts and special offers

    As stated above, many lenders will offer borrowers discounts or special offers at specific times of the year. Whether it’s in celebration of a holiday or simply the start of homebuying season, getting the timing of your mortgage application right and paying attention to when the best deals start surfacing will help you get a great mortgage rate.

    6. Lower your debt-to-income ratio

    This one goes hand in hand with your credit score. Having a low debt-to-income ratio can make a significant difference in the interest rate you are offered. Your debt-to-income ratio is the amount of your monthly debt payments divided by your monthly gross income. If you have a high debt-to-income ratio, it can indicate to lenders that you may have trouble making your mortgage payments in the future. To lower your debt-to-income ratio, you can either increase your income or pay off some of your debts.

    7. Opt for a shorter loan term

    Opting for a shorter loan term can be a wise decision that can save you a considerable amount of money in the long run. Lenders often offer lower interest rates for shorter-term loans, allowing you to build equity and reduce your overall borrowing costs. Plus, a shorter loan term means you’ll pay off your mortgage sooner and be free from debt faster.

    8. Refinance

    If you’re already a homeowner and are in the market for a new home, you may be considering refinancing to get the best mortgage rate. Refinancing allows you to replace your current mortgage with a new one that has a lower interest rate. Even if you refinance, it’s still important to shop around for the best rates and loan terms. You’ll also need to gather all of the same financial documents, including your credit score, income verification, and debt-to-income ratio.

    9. Consider all mortgage types

    Different mortgage types have varying interest rates, fees, and terms. For instance, a fixed-rate mortgage will offer a consistent monthly payment, while an variable-rate mortgage can change with the market. Even if you have your heart set on a specific type or are simply more comfortable with one, looking into different types might reveal some new options for you. It’s a good idea to understand every mortgage and compare their rates to find the one that fits your budget and long-term financial goals.

    10. Explore government programs

    First-time homebuyers, this one’s especially for you! There are numerous government programs designed to help first-time homebuyers navigate the homebuying process. These programs may include down payment assistance and other financial incentives to help make the dream of homeownership a reality. Down payment assistance programs or provincial land transfer tax exemptions, for instance, can save you a lot of money on your mortgage.

    How to Use a Mortgage Calculator for Best Mortgage Rates

    Whether you’re up for renewal or buying your first home, using a mortgage calculator will only help you get the best deal on a mortgage rate.

    If you’re a first-time home buyer overwhelmed with mortgage information –from what you can afford to how much you’ll pay monthly – using our mortgage calculator will help clarify all of that. Are you up for renewal or looking to refinance your mortgage? A common mistake homeowners make is going with the same lender without shopping around for lower rates first. With all your options in front of you, it’s way easier to compare rates and make money-saving decisions for your first purchase, renewal or refinance. 

    What nesto’s calculator can help you with:

    • Plug in your information and find out what you can afford.
    • Don’t have all the details? No worries, we’ll estimate them for you.
    • Don’t just plug in numbers. We make sure you’re familiarized with all the components that make up your mortgage.

    How nesto Can Get You the Best Mortgage Rate or $500

    Our mission at nesto is to change how the mortgage industry works by offering all of our clients an empowering and transparent mortgage experience. Not to mention, nesto’s lowest rate guaranteed policy give borrowers the lowest rate available right from the start. If we can’t match it, you get $500. 

    At nesto, our commission-free mortgage experts hold professional designations from one or more provinces concurrently. We believe that our clients will receive the best advice and care when they speak with specialists that exceed the industry status quo. 

    Factors That Provide You the Best Mortgage Rate

    To recap, here are all the factors to keep on your radar in order to secure the best mortgage rate from your lender.

    Perfect credit

    When considering your loan application, lenders will adjust their rates based on various criteria. Your credit history is one of the main criteria they will look at. Not only will this help to determine whether you qualify for a loan, it will also determine which rate they will offer you.

    Lenders don’t want to lend a sizable amount of money to a borrower who has a history of defaulting on his loan payments, or one who carries heavy credit card debt, for example. If lenders do decide to lend this person money despite his history, they will most likely protect themselves by offering a higher interest rate.

    When aiming for the lowest rate, make sure your credit profile is as clean as possible. Keep your credit card balances as low as possible (or don’t have any, ideally).  

    High qualifiable income

    For the reasons mentioned above, lenders will only offer you the best rate if they think you will stay on top of your payments. One way to do this is to prove to them that your revenue stream is sufficient for you to do so.

    You must also show that you have a stable job. Lenders want to know that you will continue to earn enough money to make your payments. Ideally, they want to see that you have held the same job for at least the last two years without interruption.

    Not all incomes are created equal… You’ve got it by now, lenders are risk-averse. This means that when looking at two individuals with the same level of income, lenders will prefer more ‘stable’ sources of income. Specifically, they will tend to prefer salaried full-time employees. To them, self-employed, hourly, commissioned, or seasonal workers, etc. pose a greater risk, and hence may be offered a higher rate.

    Low levels of debt

    Although a high and stable source of income is a must to qualify for the best rates, the ultimate metrics the lenders will look for is the ratio of debt over income (referred to as the GDS and TDS ratios). Simply put, the lender will compare your existing commitments (debts) to your total level of income. When subtracting your commitments to your income, what’s left needs to be more than enough to cover your mortgage payments.

    Debt comes under different forms: credit card payments, car lease, car payments, lines of credit, student loans. These add up quickly.

    If you want to make sure you qualify for the best rate, make sure to keep your level of debt at the minimum. Looking to buy a new car? Wait until your mortgage transaction is completed. When looking at the big picture, this can have a significant impact on your mortgage payments – and how much is left in your pockets. (See: Mortgage Affordability Calculator)

    Lenders love insured mortgages

    This will sound counterintuitive, but going for a lower down-payment will most likely mean you’ll get a better rate.

    The reasoning here is that when you put less than 20% down for your purchase, your mortgage will have to be insured against the risk of payment default. This insurance guarantees to the lender that if the property owner fails to reimburse his mortgage, the lender will be paid by the insurance company. Sweet deal for the lender right?

    Because of this insurance, lenders take virtually no risk on lower down-payment purchases. For that reason, they will often offer their lowest rates to these specific clients. There is a full article on this insurance if you are looking to learn more on the subject.

    How to Qualify For A Mortgage Once You Get a Low Rate

    As exciting as it is to find a low rate for a mortgage, you have to make sure you qualify for said rate. By following the 10 tips listed above, you’ll be able to actually secure the advertised rate that caught your eyes.

    So, make sure you have a stable income, review that credit score and pay off as much debt as possible. Not to mention, guarantee that you have enough money saved for a down payment, closing costs, and all the other fee associated home buying that people tend to forget about.

    FAQ

    What is the minimum down payment I need to qualify for a mortgage?

    The minimum down payment required depends on the price of the home. For homes priced less than $500,000, buyers must put down at least 5% of the purchase price. If the home is priced between $500,000 and $999,999, buyers must put down 5% of the first $500,000 and then 10% of the remaining amount. For homes priced at $1 million or more, a minimum down payment of at least 20% is required.

    Does my credit score affect my ability to get the best mortgage rate?

    Yes, your credit history is one of the main criteria lenders will look at. Not only will this help to determine whether you qualify for a loan, it will also determine which rate they will offer you.

    Are there any special considerations if I put less than 20% down on my home purchase?

    The reasoning here is that when you put less than 20% down for your purchase, your mortgage will have to be insured against the risk of payment default. This insurance guarantees to the lender that if the property owner fails to reimburse his mortgage, the lender will be paid by the insurance company.

    Final Thoughts

    Yes, the best rate is out there. The trouble is, finding it can be frustrating, not to mention time-consuming. We’re here to help. Our mission is to get you the best rate, period. Our experts know the ins and outs of the mortgage market. Finding a needle in a haystack is what we do.

    Contact a nesto mortgage expert today and see how simple it is to find the right mortgage. All that will be left for you to do is to put that champagne on ice and plan your housewarming party. 


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