Refinancing your mortgage can save you thousands of dollars over the life of your loan.
With interest rates climbing and around 3.4 million Canadians scheduled to renew their mortgages by the first quarter of 2025, securing the best possible rate has never been more critical. This guide will arm you with essential refinancing strategies, helping you make an informed decision about your home and financial future.
11 Ways to Get the Best Refinancing Rate
- 1. Improve Credit Score - Check credit report, pay down debts
- 2. Shop Around - Compare offers from banks, credit unions, and online lenders
- 3. Loan Type & Amortization - Evaluate fixed vs. variable rates and loan duration
- 4. Increase Equity - Lower loan-to-value ratio for potentially better rates
- 5. Lock in Rate - Lock in with a fixed-rate mortgage if you expect rates to climb
- 6. Improve Financial Profile - Maintain stable employment, prepare documentation
- 7. Negotiate - Leverage multiple offers for better terms
- 8. Time it Right - Monitor market trends and calculate break-even point
- 9. Seek Professional Advice - Consult financial advisors or mortgage brokers
- 10. Work with Mortgage Broker - Access exclusive rates and lender relationships
- 11. Use Comparison Sites - Utilize tools like Everyrate.ca to compare options
1. Improve Your Credit Score
Your credit score is one of the most important factors lenders consider when determining your interest rate. Here's how to improve it:
- Check and understand your credit score: Request a free copy of your credit report directly from Equifax or TransUnion, or use an app like Credit Karma to access it for free. Review the report for errors such as incorrect personal information, accounts that don't belong to you, or incorrect late payments. In Canada, credit scores range from 300 to 900. A score of 650 or higher is generally considered good, while a score below 600 is seen as poor.
- Pay down existing debts: Reduce your credit card balances and pay off any outstanding loans if possible. This will improve your credit utilization ratio, which is a key factor in your credit score.
- Avoid opening new credit accounts before refinancing: Each hard inquiry can temporarily lower your score, so hold off on applying for new credit cards or loans during the refinancing process.
2. Shop Around and Compare Offers
Don't settle for the first offer. When it comes to mortgage refinancing in Canada, it pays to shop around.
It is important to compare multiple types of lenders, including big banks, credit unions, and online lenders. Each may offer different rates and terms. Big banks often have a wider range of products, while credit unions and online lenders may provide more competitive rates or specialized products for specific situations.
Use online comparison tools and mortgage brokers. Websites like Everyrate.ca can help you quickly compare rates from various lenders. Mortgage brokers have access to multiple lenders and might find offers you wouldn't discover on your own.
3. Consider the Loan Type and Amortization
Different loan types and terms can significantly impact your interest rate. Fixed-rate mortgages maintain their interest rates throughout the term. Meanwhile, a variable interest rate is influenced by the Bank of Canada's prime rate. This means that a variable-rate mortgage will save you money if rates drop during your term, but you'll pay more interest if rates increase.
The amortization, the total payback period of your mortgage, also affects your interest rate. Generally, shorter amortizations have lower interest rates but higher monthly payments. Extended amortizations reduce monthly payments but increase the interest paid throughout your mortgage.
Your personal circumstances should guide your decision between the various loan types and terms available.
4. Increase Your Equity or Loan to Value Ratio
The more equity you have in your home, the lower your loan-to-value (LTV) ratio, which tends to lead to better rates. Higher equity demonstrates a lower risk to lenders, which can encourage them to offer a more competitive rate.
If possible, consider making extra payments on your current mortgage to decrease your loan-to-value ratio. Using savings or windfalls to make a lump sum payment before refinancing can also help boost your equity position.
However, consider your pre-payment abilities when making extra mortgage payments. This is the ability to pay off your balance without incurring a penalty. Many mortgages in Canada are "closed," meaning you can only pay a pre-pay a certain amount annually. Meanwhile, "open" mortgages don't have restrictions on repayment.
With an LTV ratio below 80%, you can avoid paying for mortgage default insurance, saving you thousands over the life of your loan. Additionally, a lower LTV ratio can qualify you for better interest rates, further reducing your overall costs.
5. Lock in Your Rate
Timing is crucial when locking in a fixed rate during the refinancing process. Keep a close eye on economic indicators and mortgage rate trends. If rates are trending upward, it might be wise to lock in a rate sooner rather than later.
Most lenders also offer rate locks for 30 to 120 days, with longer periods sometimes available for a fee. Be sure to understand the terms of your rate lock, including any conditions that might void it. It's important to note that while a rate lock protects you from rate increases, it typically doesn't allow you to take advantage of rate decreases unless your lender offers a "float down" option.
6. Improve Your Financial Profile
Lenders favour borrowers with stable finances. If possible, avoid changing jobs before or during the refinancing process. Lenders typically prefer to see at least two years of steady employment, as it demonstrates reliability and consistent income.
Prepare necessary documentation, including recent pay stubs, tax returns, and bank statements to demonstrate your financial health. Having these documents ready can significantly speed up the refinancing process and show lenders that you're organized and serious about your application.
If you have a history of on-time payments, stable or increasing income, and responsible credit use, make sure to emphasize these points to potential lenders. Consider creating a brief financial summary highlighting your strengths - almost like a refinancing resume.
This proactive approach can set you apart from other applicants and potentially lead to more favourable terms.
7. Negotiate and Leverage Offers
Don't be afraid to negotiate for better terms with lenders. If one lender offers a better rate, ask others if they can match or beat it. Remember, lenders want your business and often have some flexibility in their offers.
Having multiple offers gives you leverage in negotiations. Be prepared to show lenders competing offers to see if they can improve their terms. This approach can often lead to better rates or terms than those initially offered.
Look beyond the interest rate to consider all fees and closing costs. Sometimes, a slightly higher rate with lower fees can be more cost-effective in the long run. Calculate the total cost of the loan over its lifetime, not just the monthly payment or interest rate.
8. Refinance at the Right Time
Timing can significantly impact the rates available to you when refinancing. Keep a close eye on the Bank of Canada's policy rate and broader economic trends. Financial news sources like Everyrate.ca as well as mortgage industry reports, can provide valuable insight into future rate changes.
Evaluate your current loan and potential savings by calculating your mortgage break-even point. This ensures the savings from refinancing outweigh any associated costs. Consider how long you plan to stay in your home and your current interest rate compared to other rates on the market.
Remember, the refinancing process can take several weeks, so start early and be patient.
9. Utilize Professional Advice
If you are feeling lost during the refinancing process, it's okay to ask for help. Financial advisors and mortgage brokers can provide personalized advice based on your specific financial situation and goals.
Experts can help you understand complex terms and conditions and bring a valuable understanding of current market conditions. They can assist in weighing the pros and cons of different refinancing options and help you identify hidden costs that you might overlook on your own.
Professionals can also save you time and reduce the stress around refinancing, an advantage that's often overlooked. They can handle much of the paperwork and negotiations on your behalf, allowing you to focus on your day-to-day life while still making an informed decision.
10. Work with a Mortgage Broker
Mortgage brokers can be a powerful ally in your quest for the best refinancing rate. They offer several advantages, including access to a wide range of lenders, some of which may not be directly available to consumers. Brokers can negotiate on your behalf and save you time by comparing multiple offers.
One key benefit of using a broker is their access to exclusive rates and offers. Many lenders provide special rates or promotions only through broker channels. Brokers often have established relationships with lenders that can sometimes lead to better terms or faster approvals.
When choosing a reputable broker, look for licensed professionals with good reviews on Rate-my-agent and Trustpilot, or get recommendations from friends or the internet. Choose someone who takes the time to understand your unique financial situation and is transparent about their fees and compensation structure.
11. Use a Comparison Site like Everyrate.ca
Everyrate.ca is a useful online tool for Canadians starting their refinancing journey. The website's straightforward interface helps simplify the mortgage process. By entering basic information about your refinancing needs, you can view a range of offers from various Canadian lenders. This can save time compared to contacting lenders individually.
Everyrate.ca shows both advertised rates and potential discounts, which can help you understand the full spectrum of available options. While it's a good idea to use other research methods as well, the site provides a helpful starting point for exploring your refinancing options. Remember that not all lenders or special offers may be included, so consider this tool as part of a broader approach to finding the best refinancing deal for your situation.
Conclusion
Securing the best rate while refinancing requires effort and research, but the potential long-term savings make it well worth your time. By improving your credit score, shopping around, understanding your options, and timing your refinance wisely, you can position yourself to get the best mortgage rate in Canada.
Key strategies to remember:
- Start early and be proactive in the refinancing process
- Improve your financial profile to make yourself attractive to lenders
- Compare offers from multiple sources, including big banks, smaller lenders, and brokers
- Consider all aspects of the loan, not just the interest rate
- Don't be afraid to negotiate and leverage competing offers
- Seek professional advice when needed
By following these strategies, you'll be well-equipped to navigate the refinancing process and secure a rate that can save you thousands over the life of your mortgage. Take control of your financial future - start your refinancing journey today!
