Target lowest borrowing costs when aiming at a mortgage

A growing number of home hunters are giving the thumbs up to going online to secure a mortgage, according to a survey by Rates.ca.

While the survey found 72 per cent of Canadian mortgage shoppers get advice in person, close to one in five shoppers said they’d be “happy to get a mortgage without talking to people on the phone or in person.”

Plus, an additional 45 per cent would consider it, if it meant getting a lower interest rate of at least 0.05 to 0.20 percentage points that could save about $195 per year for every $100,000 of mortgage.

“Just as we saw with online stock brokerages a few decades ago, a growing segment of borrowers is willing to make their own mortgage decisions online without a banker’s advice,” says Rob Mclister, mortgage editor at Rates.ca.

The survey also found Canadian mortgage shoppers care less about a lender’s brand name when a great rate is at stake, with 23 per cent saying the lender’s brand is important when shopping for a mortgage.

For most mortgage shoppers, getting the best rate surpasses all other considerations by a large margin. Three out of four say getting a low rate is an important factor when choosing a mortgage, with 47 percent of respondents citing it as their number one mortgage goal.

Interestingly, only 19 per cent said the lowest overall borrowing cost is their main goal, followed by 14 per cent citing clear communication of mortgage terms and conditions, says Mclister.

“The lowest total borrowing cost, which includes interest, fees and penalties, always matters more than the lowest rate,” he says. “But people continue to mistakenly associate the lowest rate with the greatest savings.”

Mclister recommends a four-step method to minimize borrowing costs:

Research and get advice on the optimal mortgage term given your specific five-year plan.

Compare the lowest rates for that term on a rate comparison website (pay attention to the fine print in the rate details).

Call the lender or mortgage broker advertising the rate and ask them to outline all significant restrictions and features of the rate (including things such as the prepayment penalty calculation method, the time you’re given to port the mortgage to a new property and whether you can borrow more money before maturity with no penalty).

Pick the best overall value based on this research.