Canadians have a lot to consider when looking for the right mortgage: interest rates, fixed versus variable, legal expenses and repayment. There’s no shortage of things to confuse the infrequent mortgage buyer (which, is most of us). So, before getting too far down the path, here are a few key tips to keep in mind as you look for the best mortgage for your personal situation.

Step One: Plan Ahead

Pull Your Own Credit Reports. Lenders decide on the rates you’ll qualify on based on a number of factors: employment, debt repayment (such as credit cards and car loans), and your credit score. Ordering your credit report and scores from the major credit reporting agencies before you visit a bank or broker will help you understand your current position. Generally, the higher your credit score, the better your rate will be. (Article: how credit score affects mortgage rate). Personal copies of current reports should provide enough details for lenders to consult with you on the types of loans they can offer you. Get pre-approved. This protects you from changes in the interest rate while you do your home search. Pre-approval also makes any offer you make on a property much stronger, as sellers know you don’t have to worry about financing. We recommend getting pre-approved with a couple of lenders, especially when rate specials are coming out, so you know you’ve got access to the best rate possible. The nice thing about pre-approval is that you’re under no obligation to go with that lender, and if period on your pre-approval runs out you can simply sign on for another one. You can go to a bank or a mortgage broker to get your pre-approval

Step Two: Decide Between a Broker and a Bank

There are advantages to working with both banks and brokers. Banks tend to be best for borrowers with conventional financing scenarios, such as long term salaried employment. Mortgage brokers can often find a lender who will make loans that a bank refuses–problem credit is one example. Loans for unique situations or commercial properties might be easier to secure through a mortgage broker. A broker operates independently from banks, and has access to many different lenders and borrowing programs – which means he or she may often be able to find you the most competitive rates for your specific situation. A broker will originate a loan, process it and pass it along to the lender. Ultimately, you should always choose a lender based on the best loan terms they will offer you.

Step Three: Find Your Home

Choosing the right home goes far beyond finding the perfect house or neighbourhood. In fact, your home will directly affect your financial security in the future. Think hard about the stability and future of your home’s location, and always be realistic when it comes to the current state of your potential purchase. “Sweat Equity” is powerful, but it’s also quite time consuming…it’s important to be realistic about how much work needs to get done and whether or not you can realistically afford it. If choosing to renovate, discuss working the costs into a mortgage with your broker or lender. Many institutions offer lines of credit for this very purpose.

Step 5: Determine What You Can (Realistically) Afford

Generally, lenders have pre-determined lending ratios that ensure mortgage payments never exceeds more than a third of a person’s income. However, this doesn’t always take into account all of your regular and discretionary expenses, nor potential future income changes or simply a lifestyle to uphold. Once you find a home you love, start organizing all of your numbers. Can you really afford the mortgage payments, and are you willing to scrimp and save every month? Are your prepared for the change in lifestyle that might be required? Situations change: saddling yourself with debt may cause you a great deal of stress in the future. Also, don’t forget to consider any effects on your current mortgage (if you have one). Review your current mortgage before entering into a new agreement: there are likely penalties of leaving your mortgage early. How will you pay for these penalties?

Step 6: Learn About Fixed Mortgage Rates

The first and most predictable option for homebuyers is a fixed mortgage rate. In a fixed rate mortgage, your mortgage payments are the same every month. The interest rate is set for a specific time period, so you can rest easy if lending rates start to climb. However, if lending rates fall, you may find yourself paying a steep premium. Fixed rates mortgages are great if you’d prefer to not worry about how change in lending rates will affect your situation.

Step 7: Learn About Variable Mortgage Rates

An alternative to a fixed rate mortgage is a variable rate contract, in which your payment is determined by current lending rates. These can change often. While these typically can result in lower payments, and often a quicker payment of an outstanding mortgage, the can be a great deal of unpredictability. Whether a variable rate mortgage is right for you really depends on your tolerance for unpredictability.

Step 8: Make the Decision

Brokers and banks can explain the benefits of disadvantages of your financing options, but they probably won’t make a strong recommendation any particular direction. At some point, you’ve got to take the leap. Fortunately, you don’t have to lock into one type of mortgage rate for however long you own your home: You can try out either one for a year or two, then switch over if it just isn’t working for you or lending rates appear to be working against you.

Step 9: Establish a Deposit and Your Repayment Plan

As soon as you make an offer, you’ll need a deposit. Put down as large a deposit as you can afford: this lowers the total amount of your mortgage, likely lowers CMHC insurance premiums, and puts you further towards paying off your new mortgage. You should also consider your long term repayment plan: Think about increasing your monthly payment rather than simply paying the minimum. Mortgages are incredible tools, as they allow us to get into our homes, but the sooner you can pay them offer, the more you’ll be able to enjoy other activities with the money you’ll save.