How to get the right mortgage while rates are at all-time lows

Over the course of the year, mortgage rates have hit an all-time low, with many dropping below the two-per-cent mark. As a result, this has sparked a lot of interest and homebuying activity in Canadian real estate markets. However, it’s important to emphasize that the lowest rate option isn’t always the best mortgage option. If you’re in the market to buy a home right now, it’s worthwhile to look beyond just the rate and understand how to properly navigate this environment. You would be surprised how many lender options and mortgage features are available that can save you thousands of dollars over the long term.

Why are rates so low?

The low interest rates are a direct result of the COVID-19 pandemic and the fear of its impact on the Canadian housing market. To protect the economy, the government of Canada stepped in to stimulate homebuying activity, which resulted in this significant drop in rates. With banks and other financial institutions lending at such low rates, this has made borrowing money easier and homeownership more attainable.

Which mortgage is right for you?

In this type of environment, you’ll often find that lenders promote their competitive rates in order to stand out. However, before you make any decisions, it’s a good idea to speak to an unbiased mortgage advisor who can explain the difference between rates, educate you on key mortgage features and give you the full picture of various lenders in the marketplace. Having someone to walk you through this process will help you make a well-informed decision and choose a mortgage option that best suits your circumstances and long-term goals.

Key mortgage features to look for

While searching for a low rate is a common place to start, it’s not the only factor to take into consideration. In some cases, a lender may have a low rate but high penalties for changing or breaking a mortgage early. If refinancing or making a lump sum prepayment is something you intend to do, you could find yourself paying up to $20,000 to $30,000 in penalties. It’s important to note that with certain lenders, penalties can be much smaller. Often more than two to three times lower.

To avoid this scenario entirely, it’s critical to understand the different mortgage features and how you can benefit, as well as which lenders and mortgages offer them. For example, features to consider include portability, prepayment privileges and prepayment penalties. Each of these factors is helpful when comparing lenders and offer a host of benefits that could save you more money in the long term. Although low rates can be enticing, having a full featured mortgage will give you better flexibility and offer more ways to utilize your money in the future.

Benefit of shopping around

Many people assume that getting a mortgage with the big banks is the best option, but that’s often not the case. No two lenders are ever the same, and by broadening your search, you can increase your chances of finding a mortgage that best suits your unique situation and saves you the most money.

Over the last few months, our team at Homewise has been incredibly busy offering unbiased advice and helping homebuyers explore their options and shop different lenders. Working with more than 30 banks and lenders, our advisors walk people through the process of understanding all of the options and features available, so they can find what’s right for them and get the most out of their mortgage.