The purchase of any real estate, whether for your first home, the fifth or the house of your dreams, will always be accompanied by a difficult process. There are countless details to consider, documentation to sign and meetings to attend. One of the main details that people often forget is to shop around for the best possible interest rate. It can be easy to forget that not everybody offers the same interest rates and we can not all qualify for the same rates. Let’s take a look at why interest rates vary from one lender to another so that you are best equipped when it comes time to shop for a rate and loan that will work for you.
Lenders and banks are companies
People often forget that lenders and banks are companies that provide a necessary service, but also seek to take advantage of this service and compete with similar businesses. This means they are looking to attract potential buyers and do business with them for their mortgage rather than with other lenders. To get there, lenders often advertise their best interest rates that they can provide to a borrower. It also means that anyone applying for and obtaining a mortgage will not be approved for this low-interest rate.
Why is my interest rate different from my friend’s?
Your interest rate is different from that of your friend, or parent, for two main reasons. You are the first reason and your lender is the second.
Who you are as a borrower greatly affects the interest rate for which you will qualify. Is your credit good? Do you currently have a job? Are your job and your income stable? How much money did you save? If you are currently looking for a mortgage and are confused about the types of interest rates available to you, you should ask yourself the following questions.
Mortgage interest rates depend on a large number of variables since all borrowers are different. It would be almost impossible to offer every potential buyer the same interest rate because no one is the same type of borrower. When shopping for a mortgage, keep in mind that your interest rate will be affected by the following variables:
The type of mortgage you want. Fixed or variable? Closed or open?
- Your credit rating
- The house you want to buy
- How much should you borrow
- All other debts that you currently have
We understand that it may be tempting to compare your interest rate to the interest rate of your relatives and friends, but that would only cause you more stress. As we explained above, there is no identical interest rate for all. If one of your friends has applied for a mortgage several years before or after yours, it is very likely that they have a different interest rate than yours because of that. It is also likely that your loved one is a lower interest rate than you, even if you bought your homes during the same period.
The other main reason why your interest rate is different from the majority of homeowners you know is that of the origin of your mortgages. If you got your mortgage from a bank set up, your friend from a credit union and your neighbor from a small bank, you will probably have different rates. Most lenders have different strategies when it comes to offering competitive interest rates. Lenders, banks and caisses populaires generally have:
- Different profit objectives
- Different levels of competition
- Different marketing strategies
In other words, if you are looking to get a mortgage from a big bank because you trust its reputation, whose main purpose is profit, your interest rate will be higher than that of someone who got his Mortgage loan from a caisse whose primary purpose is to take on new clients.
All of these reasons explain why the majority of financial experts and probably your loved ones too, suggest you shop around for a mortgage. Interest rates vary so if you are interested in saving as much money as possible, you need to get some quotes and compare your options.