If you’re looking to buy a home, you probably want to secure the lowest Mortgage interest rate possible for your home loan. Over the last couple of years, that was easier to do as the housing market saw record-low mortgage rates, but this year rates have risen dramatically from Q2 onward.
If you’re looking for ways to combat today’s higher mortgage interest rates and lock in the lowest one you can, here are a few factors to focus on. Since approval opportunities can vary, connect with a trusted lender or mortgage broker for customized advice.
The following 3 Factors will determine your Mortgage Rate:
1. Your Credit Score
Lenders want to know how you have handled credit in the past to determine how well you are likely to handle it in the future. Credit card issuers, auto dealerships and mortgage lenders will check your credit score before deciding how much they are willing to lend you and at what interest rate. That’s why it’s important to maintain a good credit score. If you want to focus on improving your score, your trusted advisor can give you expert advice to help.
2. Mortgage Loan Types in Canada
There are 5 different mortgage loan types in Canada, each offering different terms for qualified buyers.
When working with your real estate advisor, make sure you find out what’s available in your area and which types of loans you may qualify for.
The following are the 5 Types of Mortgage Loans:
If you want to make large payments on your mortgage or pay off the entire mortgage without penalty, then an open mortgage is for you. An open mortgage offers maximum flexibility, however you also need to be willing to accept some fluctuation in the interest rate for the flexibility of paying off part or the entire mortgage before the term is complete.
A closed mortgage is a commitment with a pre-determined interest rate, over a pre-determined period of time. A buyer who uses a closed mortgage will likely have to pay the lender a penalty if the loan is fully paid before the end of the closed term.
The closed mortgage borrower may select a fixed rate or variable/adjustable rate depending upon their needs or preference.
Closed mortgages generally have lower interest rates than open mortgages. Most lenders will allow borrowers with closed mortgages to make a lump sum payment of up to 10, 15 or 20% of the original mortgage amount once a year without penalty.
A convertible mortgage is an agreement made at the beginning of a term that allows homeowners to change the type of mortgage they hold during its term. If a homeowner wants to start with an open mortgage and then lock into a closed mortgage, a convertible mortgage is the right choice. It offers lower rates than an open mortgage and has the option of switching to a closed term. A conversion to a fixed rate mortgage can also be done by most lenders when the borrower has originally selected a variable rate mortgage and now wishes to move to a fixed rate before the end of the term.
A hybrid mortgage is a term used when there is more than one type of mortgage contained in a single mortgage registration. The registration could include a fixed rate portion, a variable rate portion, a line of credit portion, or any combination of these. Each lender will have their own unique name for this type of mortgage allowing anywhere from 2 to 100 different products contained in the registration of the mortgage.
This type of mortgage allows homeowners 55 years and older to convert their home equity into either a lump sum payment or monthly cash payment(s), generally for living expenses. A homeowner’s equity is drawn down by the lender to the homeowner – the borrower. When the homeowner no longer wishes to occupy the property as their principal residence, or upon the death of the borrower, the loan balance is due. The balance of the loan is settled from the proceeds of the sale of the property either by the owner themselves or their heirs.
3. Your Down Payment
Whether you’re interested in buying your first home, or a vacation or income property — lenders expect you to put some cash towards your purchase, called a down payment.
Your down payment secures at least a small portion of equity in your home or property. It also indicates your financial commitment towards such a large purchase and the resulting mortgage loan. Before you start the pre-approval process and house-hunting, you’ll need to know how much you can put towards a down payment.
Tip: Be sure to have your down payment ready at least 30 days before you apply for a mortgage loan (some lenders require longer).
The minimum down payment in Canada is 5% of the purchase price.
Just 5% down can help you own a home, though there are price restrictions for this amount. And, any down payment between 5% and 20% of the home price means that your mortgage will require mortgage pre-approval to protect the lender, provided by Canada Mortgage and Housing Corporation (CMHC), Sagen or Canada Guaranty.
If you supply a down payment of 20% or more for any home price, it’s considered to be a conventional mortgage, which doesn’t legally require mortgage default insurance.
How does a down payment help your credit situation?
A down payment becomes increasingly important if your credit history is less than stellar. Some lenders may overlook past credit blemishes, or not insist on verifying income or other financial status, if you’re able to provide 35% to 40% of the purchase price for your down payment.
With your down payment, you’ll need to qualify for your mortgage amount and rate.These are just few factors that can help determine your mortgage rate if you’re buying a home. The best thing you can do is have a team of professionals on your side. Connect with us at Katharine Loucaidou Real Estate Group- Your local real estate professionals and a trusted lender so you have the expert advice you need in each step of the process. Call us today for more information: 905-863-7893