How to Negociate Low Mortgage Rates

Choosing a mortgage lender and product is the second most important part of the home buying process after choosing a home. If you're buying an investment property, it may be the most important because you won't actually live in the house day to day, but you will have to live with your payments each month.

To do this the right way will want to do a substantial amount of homework, but for my money it's worth it, because you won't wonder if you could have gotten better rates, or worry about rates going up, or anything that might keep you from sleeping at night.

The first step is to identify what makes you an appealing customer for a bank.
-You may have high income
-You might have a good credit score
-You might have had stable work for a few years
-You might be a recent graduate with earning potential
-You might be young and have a lifetime of mortgage payments ahead of you
-You might hope to get an inheritance one day
-You might have a large down payment or a high asset to debt ratio
If you don't have any of those characteristics, maybe you shouldn't be buying a house.

You need to find a way to make the bank salivate at the idea of trying to get you to be their customer.

The next step is to go into 3 or 4 reputable banks in your area - probably the one you use for chequing and two others, and make appointments to speak to mortgage brokers. I used three. In each meeting, don't forget to highlight the factors that make you an appealing customer (embellish a bit if you have to - I told them that in five years we would probably be upgrading to a larger house and if I got a good rate with them now, I would be likely to return the next time), and be candid about the fact that you're shopping around. Let them know that since you're shopping around, they should give you their absolute best rate that they would offer their most desirable clients, because otherwise another bank will likely outbid them. In my experience they would take a day or two to reply with rates.

Very soon you'll realize which banks are willing to bend over backwards to get you as a client. It will depend on which banks have had a bad month and have had trouble filling their new client quotas lately. You only need two banks to start a bidding war. Once you have two, you can stop looking.

Once you have your bidders you can start the bidding process. I spent about three weeks emailing back and forth between my two bankers, continually giving each of them a chance to outbid the other. This process is what ensures you have the best rates possible. At the time, 5.34% was the posted 5yr fixed, and prime+.5 was the posted 5yr variable. Bank-1's opening bid was 3.74% on the fixed and prime on the variable. After about 4 or 5 emails per banker, Bank-2's winning bid was 3.59% on the fixed and prime - 1.01 on the variable, plus waiving of all fees associated with discharging of the mortgage at the end of 5 years (which total about $600). Why should you pay $600 for someone at the bank to spend 20 minutes printing off loan finalization forms!?!

The savings associated with the bidding process alone was over $10,000. For my opinion, that was well worth the 30 minutes I spent writing emails. All of this was done in the two months between buying the house and the closing date. We were finally convinced of the value of the process when the lawyer said it was the lowest rates he had ever seen.