Buying your first house and negotiating for the mortgage can seem like the least fun and most complicated part of the process. But having no experience making one of life’s biggest purchases doesn’t mean you’re destined to pay the bank’s listed rate…absolutely not! Follow these five expert-approved tips to make you a better negotiator.
Know your long-term goals
Most first-time home buyers don’t realize the average person owns their first home for only three years. It’s important to think about where you might be in the next three to five years, she says. “Ask yourself: How long do you anticipate living in this property? Will your life change dramatically in the next few years? How stable is your income?” For example, if you know your employer wants to transfer you sometime in the next 18-months, a five-year, fixed-term mortgage isn’t the right fit for you. This step helps you identify what needs you might have so you know the characteristics to look for in a mortgage product.
Know your credit score
Before you walk into your bank, check your credit score (www.equifax.ca). It’s a critical factor in determining your mortgage amount. If it’s good, work to maintain that high level. If it’s not so good, talk to your mortgage broker (NOT your bank) about strategies to improve the score, such as making regular on-time payments on your credit cards or paying down existing debt.
Once you have thought about your individual needs, do research before you go talk to the banks you intend to “shop.” Find out what the posted interest rate and rate offerings at your bank. The most important thing to ask is “what strategy are you implementing in order for me to maximize my mortgage and pay it down quicker?” Most people will look at you like you have 3 heads. Why? The banks have no such strategy. They NEVER want you to pay your mortgage off faster!!! Why? Because that’s how they make money.
You need to align yourself with someone who has strategies (not just “bi-weekly payments” or “put some extra down as a pre-payment”) that can save you thousands and help you own your home many years sooner. Someone who will manage your mortgage year after year to maximize your savings.
Don’t focus on interest rates
Of course you want to score the lowest interest rate when negotiating, but this is the biggest mistake first-time buyers (and veteran home buyers) make. “People often don’t know what else to look for,” she says. Remember, mortgages are a product and the interest rate is only one feature. Discuss the other features of the mortgage, such as the payback terms, lump-sum payments etc., and what the penalties are for breaking the terms. Of course the “inflation hedge strategy”is clearly a huge part of your ability to save the most money.
Having the lowest rate can come with certain costs, like a lack of flexibility, so make sure the mortgage you want matches your needs. It might cost you a little more, but could save you thousands in the long run by avoiding penalties or being able to make extra payments.
Before you sign any papers,(or allow them to pull your credit) talk to other mortgage specialists and banks. A bank can only offer you the products they have, which might not be a fit for you,” he says. A broker can shop your mortgage around for you instead of you having to visit five banks individually….and a broker who understands mortgage management (just like your financial adviser manages your portfolio) is the broker who can save you the most money and create a strategy for you to own your home years sooner.
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