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It doesn’t matter what you’re buying. If there’s a salesperson involved, the price is almost always negotiable.
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…
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Q: Will I be quoted the best rate up front?
A: More often than not, no.
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 Those are unpublished rates available to strong borrowers and/or good customers.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:
- ask the mortgage specialist if he/she is paid on commission, and if so
- 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.
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.
Q: 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?”
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
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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.
28 Comments
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)
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…
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
I just forwarded this info to my daughter, and thank you for helping the new buyer.
Glad it’s of use, Cristina. Best of luck to your daughter.
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?
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.
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?
Hello, I want to subscribe for this website to obtain most recent updates, where can i do it please?
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.
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?
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.).
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?
Hi Bethany,
Have a peek at these tips:
https://www.ratespy.com/low-rate-low-borrowing-cost-12025229
https://www.ratespy.com/negotiating-better-mortgage-rate-09033016
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!
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…
I have a current mortgage – have never defaulted payment. 5 years ago entered a debt consolidation that has been paid off in July – but has obviously affected my credit rating.
I need to do some renovations on my basement and so approached my mortgage company about refinancing. They said no until I rebuild my credit. I have approached a mortgage broker who has been able to get me an offer to refinance – allowing some money for my renos. It’s a decent offer.
Should I take that offer back to my mortgage company and ask them again to see if they can do anything? Or would that be stupid?
Just want to make sure I do the right things
Thanks for your help.
Hi Brenda, May I assume your current mortgage company is a prime lender — meaning a lender for good-credit borrowers, like a major banks?
If so, then an approval from a non-prime lender (if that’s the case) will not sway your current lender into giving you a mortgage. Getting approved with a prime lender is different than negotiating a lower rate. You either meet the lender’s qualification criteria or you don’t.
Hi
I’m looking at this: June 2018 we took out an interalia primary and a secondary to cover the portion of payment above our normal housing expense, 2k per month, with 1.8 k per month drawn off the 2nd. This cushion was to allow us to keep the non-primary residence on the market for longer to be sold if needed. That non-primary house has now sold and closes in January. Net proceeds to pay off the interalia b loans leaving us with a shortfall, that is 20% of the value of our new home with no other debts and mid 700 credit scores. I’d prefer to just do an HLOC at a Bank for the 20% for now, and then take an additional 35% in a few months later to buy outright an older mobile home my mom has her eyes on.
My question is can a mortgage broker find and HLOC at .5% ? IF so, does the lender, cut them in for a slice of the .5%. Second question, if that is so, does something in our circumstances, ie 20% HLOC to value, make us an attractive?
Hi Mark, All brokers can find HELOC rates for well qualified borrowers at prime + 0.50%, sometimes even lower. It’s tough to comment on your appeal to lenders without knowing more about your income, debt ratios, the security, etc. Best bet is to chat with a good broker who can reel off your options very quickly after a little Q&A.
Mark, BMO is able to do HELOCs (their ReadiLine product) at prime. I was expecting prime +0.5 for the revolving portion on a mortgage that closed a little over a month ago, but when it was time to sign the papers the financial services manager at our branch said he got prime.
That is a one-off rate not BMO’s typical rate. My client just got quoted prime + 0.50% from BMO and RBC so we got him prime + 0.25% instead from Desjardins.
You made a great point that getting mortgage rate quotes online would show that I have done ample research on the matter. I’ve only been investing in properties for three years now and this is going to be my first attempt at a mortgage loan.
Perhaps this is obvious, but I have been unable to find a clear answer to this simple question anywhere online.
How does one actually go about ‘shopping around’ for the best mortgage rate (other than by using a mortgage broker or a tool like RateSpy)?.
As we know, a lender’s best rate (i.e. the discretionary rate) is not usually posted online (the everyday-low-pricing lenders being the possible exception) and can only be gleaned after negotiating with a lender. It has also been mentioned on this site that pre-approval rates are not usually the best rates and that the best rates are found instead on 45 or 30 day closings. It would seem that one would therefore need to contact each prospective lender individually to obtain/negotiate a discretionary rate quote and that this would need to be done after the ‘Agreement of Purchase and Sale’ has been signed in order to get the best rate.
So how exactly do you approach each prospective lender in order to get an accurate discretionary mortgage rate quote?
Is it a simple matter of calling or e-mailing each prospective lender and providing some basic information such as your credit score and the mortgage amount (as suggested in the above article)? In this case, at what point would you then ‘negotiate’ to determine what the discretionary rate is. And would a quote obtained in this manner actually be accurate?
Or do you need to start a formal “mortgage application” at each prospective lender and negotiate with each during this application process? (in which case you would be starting multiple mortgage applications simultaneously and then you would back-out of all except the one that provides the lowest rate quote). Would each lender not have to appraise the property at some point during this process?
Hi Eric,
Assuming you’re well qualified and have determined the optimal term and features for your needs, getting the best deal without too much effort is basically a matter of:
1) checking RateSpy to confirm the best rates for the type of mortgage you want
2) calling a few of the most competitive lenders you find on the site to have them compare their offers against one another
3) (optional) calling your primary financial institution and/or a broker to check if they can do any better or offer useful insights.
If you truly wanted the lowest theoretical rate you’d have to call dozens of lenders and negotiate with each of them. Maybe if you’re lucky you’d save another 5-10 bps by doing that. But time is worth something too and most people don’t have 50+ hours of free time to pursue that theoretical perfect rate. The Spy tries to do most of the heavy lifting for you by displaying all the best known publicly advertised rates, plus discretionary rate estimates: https://www.ratespy.com/best-bank-mortgage-rates
@Eric
This is what I did, and I think it make sense. First thing is to short list prospect lenders and brokers. There are lenders that don’t work with outside brokers. Easiest thing is to ask 1 or 2 brokers for rates via email/call by providing basic info (credit score, MLS listing, etc). Brokers usually get back to you in a couple of days, and usually tell you how much you can negotiate for the best rates. The hard part is to go after lenders directly. It is hard to contact all of them and start the pre-approval. That is why I use sites like RateSpy to short list the 1 or 2 lenders which I need to go after. Usually you can negotiate 10 to 30 basis points from their discounted posted rate (if there is any). So, this will help you to find the one and approach them. Lastly, there are some lenders like HSBC which usually have their best discounted rate posted, and there is no room for further negotiations. (But, that rate is usually very good)
David64 and TheSpy,
Thank you for the quick replies and for your take on how to actually go about ‘shopping around’ for the best mortgage rate (you’d think someone out there would have written a thorough practical how-to guide on this but alas I was not able to find one).
I like the idea of using RateSpy to short list prospective lenders and brokers before approaching a few of them individually to further compare.
So if I understand you correctly, there is no need to start a formal ‘mortgage application’ in order find out the best negotiated rate that a lender would be willing to offer you.
Instead you need only call each prospective lender, provide some information and then negotiate to see how low of a rate they can offer you based on your particular circumstances (credit score, mortgage amount, income, assets, etc…). Then you can start the formal ‘mortgage application’ process only at the one lender/broker that offered the best rate quote.
Is that right? Or would you still need to start multiple simultaneous mortgage applications after obtaining telephone quotes in order to negotiate on the rates?
Eric.
Hi Eric,
As a rate shopping site we’re written at length about how to shop for mortgage rates. But it takes some searching to find the stories because they’re old. We’ll use your inspiration to create a new how-to section on the site.
Regarding the need to start a formal ‘mortgage application’ in order find out the best negotiated rate, many lenders/brokers require this. Many don’t. But keep in mind, we’re strictly talking about typical qualified residential borrowers here, not non-prime or more complex borrowers.
In most cases, a bit of research will get you a rate quote that is within 10-15 bps or so of the lowest theoretical rate without a formal application. Lenders/brokers will give you good indications as to whether they’ll be in the ballpark and worthy of engaging with further. Ultimately, however, you’ll have to take a little leap of faith and apply with the one that *appears* to offer the best overall value, knowing that you might not get the true lowest rate in Canada but you’ll be pretty darned close.