How to Negotiate Mortgage Rates in Canada

The process of buying a home can be chaotic. For example, suppose you’re in the process of making an offer or securing a mortgage on your conditionally accepted home. In that case, it might be tempting to skip the process of negotiating your mortgage rate and simply go to your local bank branch to apply for a mortgage. While negotiating your mortgage rate might seem like a small step that you can skip to streamline your home buying process, that is a mistake. Not negotiating your mortgage rate could make you tens of thousands of dollars poorer over the life of your mortgage.

Why Negotiate Mortgage Rates in Canada?

Negotiating your mortgage isn’t just about getting a lower interest rate. It’s about what that lower interest rate will provide. Negotiating a lower interest rate means your mortgage will be less expensive to maintain, but just how much less? Let’s look at an example.

Let’s say you have an accepted offer on the home for a purchase price of $600,000, with a $100,000 down payment. Your mortgage amount is $500,000, plus $14,000 in mortgage default insurance premiums, for a total mortgage requirement of $514,000.

If you choose to get a mortgage with Scotiabank, and you are offered their posted rate for a closed five-year fixed-term mortgage, you’ll pay 4.79% interest. That interest rate, amortized over 25 years, results in a monthly mortgage payment of $2,928. You’ll also pay $115,111 in interest over the five-year term of the mortgage.

In contrast, if you negotiate your mortgage or even choose a different provider, you could get a much better mortgage interest rate. How much lower depends on current market conditions (interest rates fluctuate depending on many factors).

Using the examples above and factoring in today’s best mortgage rate of 2.34%, your monthly mortgage payment would be just $2,262. That is a difference of $666 per month or $7,992 per year. In addition, you’ll pay $55,337 in interest over the five-year term of the mortgage, a difference of $59,774!

To make our argument even more compelling, suppose you negotiate your mortgage rate and receive the lower rate we listed above. Then, if you were to invest the difference between the two payments in a balanced investment portfolio earning 6%, by the end of the five-year term, you would accumulate an additional $46,446.

While the example above may be somewhat dramatic, it effectively illustrates that negotiating your mortgage rate is worthwhile. So here are our top tips for negotiating your mortgage rate.

1. Gather Your Documents

The key to putting your best foot forward when negotiating your mortgage rate in Canada is to have all of your financial ducks in a row. That means providing your lender with all of the information they need regarding your income (including any side hustles), savings, and debt. Here is a list of documentation you should provide:

Proof of employment and salary
T4s showing proof of business or rental income (if any)
Financial statements showing 90 days of account balances for any savings accounts
Proof of debts and their current balances
Your partner’s information if you are jointly applying for a mortgage

Providing this documentation will remove any opportunity for your lender to give you a higher rate based on missing information.

2. Strengthen Your Mortgage Application

The strongest mortgage applications get the best rates, so it’s essential to create the best financial profile for your lender. Here are some strategies you can use to strengthen your finances, and therefore your mortgage application:

Decrease debt – fewer debt obligations mean you can devote more of your income to paying your mortgage payments, which will improve your mortgage affordability and help you qualify for the best mortgage rate
Improve your credit score – your credit score is a crucial predictor of what mortgage rate you’ll receive. Improve your credit score by making regular payments on your debts, maintaining a good credit mix, and never carrying more than 30% of your overall limit.
Increase your down payment – a larger down payment makes you a stronger borrower. However, there is a caveat to this tip: Down payments larger than 20% often don’t qualify for the best mortgage rates because they aren’t insured by mortgage default insurance.

A robust mortgage application and a solid financial profile will give you leeway to negotiate with your lender, in particular because you will be able to leverage other offers.

3. Be Informed

Arming yourself with information is an excellent way to keep a cool head while negotiating. Find out the norm for mortgages in your current market, and use that information to push back if your lender offers you a too high rate. Ask friends and family members who recently purchased homes what mortgage rates they got, and take note of the terms and whether their mortgage was fixed or variable.

Beyond friends and family, check in with online forums local to your province. Finally, there are mortgage rate comparison websites reporting the lowest rates from the major banks and other lenders.

4. Shop Around

When negotiating your mortgage rate in Canada, it’s critical to shop around for the best rate. If you only apply for a mortgage through your primary bank, odds are you won’t get the best rate available. If you work with a mortgage broker, they can shop your application around to lenders and find the best rate.

Working with a mortgage broker doesn’t cost you anything because they get paid by the lender. You’ll only need to submit one application and authorize one credit check. Mortgage brokers also get volume discounts from their lenders, so the rates they offer are lower than those you could negotiate yourself.

If you prefer to borrow from your primary bank, a mortgage broker can give you leverage by lining up a competing offer.

5. Negotiate Add-Ons

Negotiating your mortgage isn’t just about the interest rate. Mortgages also come with additional features that help you pay off your mortgage ahead of schedule. These features are called prepayment privileges.

There are two common types of prepayment privileges, lump-sum yearly payments and increasing your regular payments by a certain percentage. For example, your lender may offer you 10/10 prepayment privileges, meaning you can prepay 10% of your balance once per year and increase your monthly payment by 10%. Of course, you may wish to negotiate for better prepayment privileges, like 20/20.

Some lenders also offer additional options like Skip a Payment and home equity lines of credit. If those options interest you, consider negotiating to have them added to your mortgage as well.

Negotiating Mortgage Rates is Worthwhile

While it’s tempting to avoid negotiating mortgage rates in Canada during the hectic process of buying a home, this is a mistake. Negotiating your mortgage rate is as important as negotiating the price of your house. To get the upper hand with your negotiation, make sure to prepare your documents, do your research, and shop around.

Jordann Kaye

Jordann Kaye is a marketing and communications professional living in Halifax, Nova Scotia. As the owner of an 83-year-old cottage, Jordann spends much of her time working on home renovations. Founder of the popular personal finance blog, My Alternate Life, Jordann has been featured in many notable publications including The Globe and Mail, Toronto Star, CTV News and CBC.