Buying a home requires a lot of planning and research, and one of the most important things that needs to be done is securing a mortgage. There’s a lot of information out there about lenders, brokers, and rates–but what option will work best for you?
In order to find out, it’s recommended that you shop around for mortgage quotes.
Why You Should Seek Out Multiple Quotes
Accepting the first mortgage rate offer that comes your way isn’t always the best idea, especially if you head straight to your primary banking institution. A Bank of Canada study states that “consumers who remain loyal to their home bank, or those who gather few quotes may, as a result, be offered higher rates”.The study continues to state that the upfront cost of going with their primary bank as a lender is between $759 and $1,617. Over a standard 5-year term, that’s up to $8,000. Extended to the full amortization period of a typical Canadian mortgage, you could be spending tens of thousands in unnecessary interest payments.
Of course, when looking at quotes, the difference seems very small–maybe just a 0.25 or 0.5 difference in interest rate, but that small difference adds up. Consider the math on a $500,000 mortgage with a 25-year amortization and a rate difference of 0.25 percent. Over the course of a year, that’s $720, and over the full mortgage terms it adds up to $18,000.
When approaching your primary bank as a lender, having other quotes can give you negotiating power. Many lenders will match the rate of the quotes once they know you’re considering other options.
Multiple Mortgage Quotes and Your Credit
Typically, a mortgage lender will perform a credit check when you apply for a mortgage quote. It’s important to know that there are two types of credit checks: hard inquiries and soft inquiries.Soft inquiries allow a qualified party to see things such as your payment history, loans, and lines of credit. Soft credit scores are performed for reasons other than applying for credit, such as when you’re applying for a lease or checking your own credit. They do not affect your credit score.
Hard inquiries are a formal review of your credit report and do have a temporary negative impact on your credit score. However, Canadian credit bureaus (Equifax and TransUnion) have built in “rate shopping” to their scoring models. For that reason, it treats multiple inquiries as a single inquiry when received within a short timeframe. This window of time varies, but is usually between 14-45 days.
This means that you can apply for various mortgage quotes without worrying that it will heavily affect your credit score.
Where to Get Mortgage Quotes
In Canada, there are several places where you can obtain a mortgage:- The Big Five Banks: Canada’s five major banks (TD, Scotiabank, RBC, BMO, and CIBC) often offer discounts for existing customers, though their rates are not always the most competitive.
- Mortgage Brokers: Mortgage brokers work with various lenders and can find options on your behalf at no cost. They can gather multiple mortgage quotes that are tailored to your financial situation.
- Credit Unions: Credit unions often offer competitive mortgage quotes and more flexible lending criteria than traditional banks. Some may even have programs that are geared towards first-time homebuyers.
- Monoline Lenders: Monoline lenders differ from banks in that they exclusively offer mortgages and no other banking services. Because mortgages are their primary business, they often provide competitive rates.
- Online Mortgage Lenders: Digital-first lenders, such as Tangerine and Equitable Bank, have streamlined application processes and occasionally have lower rates due to their reduced overhead costs.
The financial part of buying a home is often the most stressful, but taking the time to properly assess your options will save you money in the future! Don’t be afraid to shop around and get multiple quotes, and reach out to professionals if you have any questions.
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