Negotiating My Mortgage – Ordering My Credit Score Five Months Out

Several different studies have shown that Canadians sacrifice a huge amount of money throughout the course of their lives simply by not negotiating their mortgage.  In fact, it always kind of amazes me that people are willing to spend hours comparison shopping in stores or clipping coupons to save 50 cents on toilet paper, but aren’t willing to take an hour or two to save thousands of dollars on their mortgage every few years.

I know that mortgages aren’t something that is in every student’s wheelhouse, but I do know a fair number of post-secondary goers who decided to take the plunge (often alongside their parents) and become homeowners.  Another demographic that I figured might be interested in a quick and dirty mortgage conversation are students looking at graduating soon – specifically students graduating from trades programs because they might be the only ones that can afford to buy a house!

Related: Why Renting Isn’t a Bad Deal For Today’s Graduates

 

Negotiating My Mortgage
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When I graduated with my Bachelor of Education degree and decided to venture out to the cool rural community I now call home, I had no idea what a mortgage consisted of, other than it was some sort of loan used to buy a house.  I did a lot of reading in a hurry in order to become familiar with terms such as “prepayment options” and I managed to complete the purchase of a modest house for a price that wouldn’t even get me a cubby hole in most Canadian urban centres these days.  Three years later, I now know just how much leverage I have, and how much money a couple tenths of a percentage point on my interest rate can mean.

Why This Three Digit Number Matters So Much

For me, the first step in figuring out what institution will get me the best mortgage is ordering my credit score.  Now there are probably a million articles out there about how to get a good credit score.  The truth is that it’s pretty straight forward – pay your bills on time, have some experience with debt, and don’t do anything too financially stupid and you should be ok.  I know my credit score is going to be pretty good – but there are two reasons for deciding to call either Equifax or Transunion when I’m four months away from renewing my mortgage:

1) If there are any errors in their data collection, I need to get them fixed up before potential lenders see them.  It doesn’t happen often, but sometimes the credit bureaus do miss things.

2) I want to know my actual credit number so I know precisely how much leverage I have when it comes time to talk with the dudes in suits.  The better my number is, the better risk I am for them, and the lower interest rate I can reasonably demand.

Most people never have a clue what their credit score is.  When they go into their bank or credit union for a loan they get the staff to look it up for them, and make decisions without you really knowing what it all means.  If you do this you’re putting all the cards in the lender’s hands.  They can throw around all kinds of terms you don’t really understand, and what usually happens for most people is that they end up signing on the dotted line for whatever rate their financial institution feels is fair.  They don’t comparison shop, or truly even know what the posted rates are.

Don’t Be a Sucker

Banks depend on this sort of behaviour.  They hope they can inform you what the “posted rate” is at the moment and that you’ll sign on the dotted line.  In fact, within the industry these interest offers are referred to as “sucker rates”.  Do yourself a favour, at the very least go online and see what other financial institutions are posting.  Even the best rates you can find online aren’t a true indicator of what you can command if you’re credit score is good.  Banks and credit unions have profit margins like anyone else, and your goal when it comes to taking out a mortgage should be to cut into that profit margin as much as possible by playing the lenders off against each other.

Financial institutions know that once most people have their mortgage somewhere they are likely to do two things that are very profitable for the lender:

1) Re-up their mortgage for the length of their amortization at the same place (you’re not going to do this because you won’t have any loyalty when the current term is up, but they don’t have to know that).

2) Wherever people have their mortgage they usually bring the rest of their business such as car loans, lines of credit, credit cards, savings accounts, RRSPs, TFSAs, and RESPs.  Sometimes consumers can even sucked into buying certain types of insurance from their financial institution.  All of this will add extra layers of profit.

I’ll keep you all up to date on how the mortgage process goes and how the negotiation proceeds from here.  Wish me luck and hopefully the real life case study will help a few of you out!

Anyone out there have some successful negotiating stories and a few precious tips to share on how to shave those tenths of a percentage off of your interest rates?

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I work at a bank, and the only tip I would have would be to ask your loan officer all of the options you have. I’ve noticed some of my wealthier clients, some with over $20,000,000 in real estate equity like to do “no point” mortgages. This is something you have to ask for much of the time, and it comes with a slightly higher interest rate, but may be a good option for borrowers that may pay off early.

Thanks TB. I’m definitely no Land Barron, but seeing what is out there is always a good thing.

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