How to get the best interest rate on a mortgage when buying your first home

In this video we look at what is a good
interest rate when buying a home. That’s coming right up. Welcome to Homebuyer’s School brought to you by Brookfield Residential. Hi everyone, welcome to another
Homebuyer’s School video, a channel where you get the latest
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notification bell so you don’t miss anything. So today I’m joined by Mujtaba
Syed mobile mortgage specialist with TD Canada Trust and the question we’re
gonna answer today is, what’s a good interest rate when buying a home? Yeah it’s a great question Karl, so interest rates kind of vary, the best interest
in my opinion is the lowest interest rate so when when you are talking to
your bank, talking to your mortgage specialist, find out what’s available. Now
interest rates are technically not just a lowest number possible which in turn
determines– it depends on rates terms outstanding, how many years. So for
example it also depends on what your goals are and what you’re expecting in
the long term so if you’re expecting to sell your house within the
next two years, maybe don’t go into a longer term. Stick with a two-year term
or shorter, so don’t look at any exiting penalties or anything like that but in
my opinion the best rate is always the lowest rate that you can get. So Mo, what is the effect of higher or–
and lower interest rates on when you’re trying to purchase house? Exactly, so– rates are basically just based on
term, right. So for example if you want to go for a different term it could impact
your rates. We have banks at rates starting from one year all the way up to
ten year fixed. Sometimes we also have available five year variables, three
year variables, so the best thing to do is really just have a conversation with
your specialist or your lender and explain to them what your goals are and
they can advise you on what’s best for you. It’s not always the best to go for a
five-year fix or five year variable, you could go for a two-year, you could go for
a three-year, you could sometimes– you can go for a 10-year if it makes the most
sense for you but those are conversations to have with your
specialists or your lender at that time. So in this environment though in the
environment we have with the current– the recent interest rate hikes,
is it better to have a shorter term or a longer term? In this scenario right now
where five year fixed rates have gone up, economy is very unstable, a lot of things
are going on I have been really recommending all my clients look into
the variable rates right now. The five-year variable rates right now have
major– major discounts. A lot of people worry about the five-year variable
rate, asking what happens if it goes up in the future.
Yes there is a potential it can go up in the future but the discount is so big
that it gives you time to react. Every time the Bank of Canada reviews
rates it gives us time right, and then a five-year variable has provisions built
into the rate where you can walk in at any time without penalties for a greater
term than what’s outstanding, for example if you have a five-year variable
you could lock in for a three or four or five year fixed, whatever is available at that
time, without the penalties. So it’s a really good way for a five-year variable today
to kind of average your interest rates over the five-year term so try to get
some lower rates. It might go up, it might come down but overall the discount’s so
big right now that you’re gonna probably do better than a five year fixed today. And remember if you want to know more about comparing mortgage rates
between the banks, check out our video above for more information. So Mo, how
much does a mortgage interest rate really matter in terms of when you’re buying
your home? Yeah so mortgage rates are probably one of the most important things, it
determines what your payments are, what your repay-ability is, how much you end
up paying back to the bank, all of that stuff is really just based
on your interest rate all it has to do– it has a big factor in playing in your
decisions with who you want to– who you want to go through as a lender or how
much you want to borrow. So interest rates like I said, the lowest the better. Is that usually the first thing you
take a look at when you’re thinking about applying for a
mortgage, the interest rates? The first thing I kind of do is
look at my budget, I look at to see how much can I afford because interest rates
right now, most banks are going to be within a tenth of each other, it’s not
going to be– they’re not going to be totally off so I would– first to see what
my pre-approval is, what my budget is and then fix a monthly budget for myself, and
once I know what my monthly budget is that I’m comfortable with, and see
what interest rate gets me closest to that payment so I know I can afford it, and
then you want to see what terms come with that interest rate to see if it’s
beneficial for yourself. So if it’s– if you have more– less
prepayment privileges or you feel like you’re stuck in for a long time and the
existing policies are a little bit more stricter, then you might want to look at
other things but it all just depends on how– what your future goals are, how you
feel after speaking to your lender, your specialist after listening to your goals
and concerns should be able to direct you into the right direction to see what
rate is best for you, what term is best for you, and then kind of go from there. Does it make sense to also think about your ability to pay that mortgage and
take into that interest rate into account right, so if you are going
five-year variable, you want to make sure that over that course of the five years
you can actually pay off, even if that interest rate increases. Absolutely, yeah.
If you want to take a look at that but with a five-year variable sometimes
you can argue the fact that there’s no stopping it right, they could come to a–
no maximum like if the Bank of Canada kept on raising rates. We do
have to be realistic, it could look at historical trends and see where prime
was and to where it is today but even then, five year variables have provisions
built into it so you don’t get– you don’t get sky-high rates or you feel like
you’re stuck in and you can’t get out. Five-year variable rates do have
provision of locking and for like I said, like a three or four-year, five-year term,
every bank, every lender will have different provisions but variables- every
lender will have a provision to kind of safeguard your interest rate so
it doesn’t go higher than what you are willing to pay or what you can pay. Perfect do you have anything else to add? No I think the best thing to do is just
have like an honest discussion with your lender and specialist and just tell
them what your goals are and you explain to them what your monthly budget is and
how much you are comfortable paying and then they can sit down, work out a
plan with you and for you to see these are the best rates possible, and
sometimes five-year variables are not always the best rate, you want to look at
what makes more sense for you. I’ve had some clients that got into two years
for their life of their mortgage and I’ve kept on
renewing because they were most comfortable with their two-year so it’s
not always the best just to look at what the five-year is, always check what all
the rates are and then kind of go from there. Sometimes banks have
big great discounts available on different terms like a
three year or four year, maybe even a five year, six year, and see what’s best
for you and then look, like once again have that honest discussion with your
specialist and lender and they can guide you in making the right choice. Perfect, well thank you very much Mo.
Thank you very much for joining us and remember we
have a lot of mortgage and mortgage rate videos in our playlist below in the
description, so have a look at that and we’ll catch you next time. That’s another edition of Homebuyer’s School. Tune in next time for more expert tips and tricks, and visit to bring you one step closer to finding your dream home. As with everything, it would be great if you like and share our videos, also please let us know if you have any home buying questions you want us to answer.

4 thoughts on “How to get the best interest rate on a mortgage when buying your first home

  1. Did you find the best interest rate for your last mortgage? Let us know if you have any tips to share. Remember to check out our other mortgage-related videos in our playlist:

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