You never want to spend a dollar more than you have to in order to buy a property or cover its expenses. After all, if you are looking to turn a profit and build meaningful cash flow, spending additional funds on interest payments that could be put to better use.
As a result, many new investors will start out by shopping around from lender to lender in search of the best interest rates available to them. This can be a huge mistake.
While it may seem proactive to hunt for the best rate by applying to multiple lenders, it can frequently wind up doing more harm than good. So, let’s take a look at the details.
Table of Contents - Why Shopping for The Perfect Lender Can Be a Huge Mistake – And How to Get the Best Rates with One Application
- What Does It Mean to Get the Best Available Rate
- The Dangers of Shopping for Lenders on Your Own
- Using a Broker to Get the Best Rates
- Step By Step Guide To Buying Unlimited Rental Properties, Featuring Scott Dillingham
What Does It Mean to Get the Best Available Rate
The first thing that every investor should learn about mortgage rates is that the lowest rate is not always the best rate for you and your investments. There are plenty of cases where simply by paying more in monthly payments on your property you can save a ton of money in the long run. As well, sometimes by agreeing to a higher interest rate, you may qualify for a higher LTV (Loan-To-Value) and increase your buying power.
So, instead of viewing the best available rate as the lowest amount that you need to pay in monthly payments and interest, you should be viewing it as the mortgage rate that provides you the most value. This means if you are offered one rate at 65 per cent LTV and another at 80 per cent, you may want to take the higher rate so that you can afford to do other things such as make key updates and renovations, furnish the property or work towards new investments.
Remember, even if you start at a higher rate, your rate may go down over time with a variable rate mortgage (However, it may increase instead.) Alternatively, you may be able to later refinance your mortgage into a lower interest rate to save money on interest payments down the line while still experiencing the increase initial affordability offered to you by the higher rate mortgage.
The Dangers of Shopping for Lenders on Your Own
So, why is it that shopping for the best available rate from multiple lenders can be dangerous to the overall health of your investments as well as your personal finances? Well, there are a few key reasons.
Not Every Lender Offers the Same Rates and Products
Firstly, not every lender you are going to apply to, or approach is going to have a mortgage product that suits your needs. However, they will not always know that before starting an application and running a credit check on you. This means that you are potentially wasting time and money by going to multiple lenders directly.
Running Multiple Credit Checks Can Impact Your Credit Score
Since applying with multiple lenders individually will usually require multiple credit checks, you need to be aware of the risk of allowing your credit to be run too many times in a brief period. You see, when you have a lender or creditor pull your credit report, it can cost you as much as five points for that ‘hard inquiry.’ While this may not be a massive problem when done once or twice. The impacts can quickly begin to add up as you require additional credit pulls.
As this process lowers your credit score, the amount of money you will qualify for and the rates you can receive can get worse – or in more serious cases, you may cause your own applications to get declined due to the impacts on your credit score.
Private and Alternative Funds Can Be Difficult to Find Alone
Sometimes when you are buying a property, the best financing options for your investments will come from private and alternative lending sources. However, that does come at the expense of needing to find these lenders – which is not always easy.
While some of these financial institutions have front-facing public identities, many private solutions are known only by the investors they work with and brokerages they have formed a relationship with. Meaning that when you are hunting for lenders on your own, these options may be near-impossible to find.
The Lowest Rate is Not Always the Best
Often when you are applying to different lenders separately, you do not have the advantage of allowing a mortgage agent to look over the details and ensure that you know what you are signing up for. Sometimes the lowest rate comes on a mortgage with restrictive conditions that limit your avenues for growth or is unavailable for you at your current stage in your investing journey due to a variety of factors such as debt-ratios or the number of mortgages you currently have on your portfolio.
Using a Broker to Get the Best Rates
Instead of navigating the mortgage market and shopping for rates blindly, you can take action and gain access to a network of experienced lenders in one application. All you need to do is bring your mortgage needs to a mortgage broker like LendCity.
Our process at LendCity ensures that your needs are factored across our entire network of lenders so that you can lock in the best available rate for your investments every time without the need for excessive credit pulls and extensive searches.
So, if you are ready to make a proactive decision to get the best available rates for your investments going forward, give us a call and book a consultation today. Our office can be reached at 519-960-0370 or you can visit us online at LendCity.ca
Interested in Rental Property Financing? If so, contact us and we will show you how you can buy unlimited rental properties with great rates.