It’s no secret that having a good credit history is important when buying a home in Canada. But what if you don’t have one? Don’t worry – there are still ways for you to buy your dream home! In this…
Here is one thing all property buyers have in common: they want the best rate. However, reality makes it slightly more complicated to achieve this goal.
There are many factors impacting the mortgage rate you will be offered. The following gives an overview of what to look for in order to get the best rate.
Mortgage rates are not a one-size-fits-all proposition. Two different homebuyers who ask for the same mortgage on the same property may be given different interest rates. Mortgage lending is based on tiered pricing. When considering your loan application, lenders will adjust their rates based on various criteria. Your credit history is one of the main criteria they will look at. Not only will this help to determine whether you qualify for a loan, it will also determine which rate they will offer you.
What does this mean? Well, it boils down to this: the better your credit history, the lower your rate will be. As a rule of thumb, with a credit score of 700 or more, you should qualify for the best rates available.
Lenders don’t want to lend a sizable amount of money to a borrower who has a history of defaulting on his loan payments, or one who carries heavy credit card debt, for example. If lenders do decide to lend this person money despite his history, they will most likely protect themselves by offering a higher interest rate.
When aiming for the lowest rate, make sure your credit profile is as clean as possible. Keep your credit card balances as low as possible (or don’t have any, ideally).
High qualifiable income
For the reasons mentioned above, lenders will only offer you the best rate if they think you will stay on top of your payments. One way to do this is to prove to them that your revenue stream is sufficient for you to do so.
You must also show that you have a stable job. Lenders want to know that you will continue to earn enough money to make your payments. Ideally, they want to see that you have held the same job for at least the last two years without interruption.
Not all incomes are created equal… You’ve got it by now, lenders are risk-averse. This means that when looking at two individuals with the same level of income, lenders will prefer more ‘stable’ sources of income. Specifically, they will tend to prefer salaried full-time employees. To them, self-employed, hourly, commissioned, or seasonal workers, etc. pose a greater risk, and hence may be offered a higher rate.
Low levels of debt
Although a high and stable source of income is a must to qualify for the best rates, the ultimate metrics the lenders will look for is the ratio of debt over income (referred to as the GDS and TDS ratios). Simply put, the lender will compare your existing commitments (debts) to your total level of income. When subtracting your commitments to your income, what’s left needs to be more than enough to cover your mortgage payments.
Debt comes under different forms: credit card payments, car lease, car payments, lines of credit, student loans. These add up quickly.
If you want to make sure you qualify for the best rate, make sure to keep your level of debt at the minimum. Looking to buy a new car? Wait until your mortgage transaction is completed. When looking at the big picture, this can have a significant impact on your mortgage payments – and how much is left in your pockets. (See: Mortgage Affordability Calculator)
Lenders love insured mortgages
This will sound counterintuitive, but going for a lower down-payment will most likely mean you’ll get a better rate.
The reasoning here is that when you put less than 20% down for your purchase, your mortgage will have to be insured against the risk of payment default. This insurance guarantees to the lender that if the property owner fails to reimburse his mortgage, the lender will be paid by the insurance company. Sweet deal for the lender right?
Because of this insurance, lenders take virtually no risk on lower down-payment purchases. For that reason, they will often offer their lowest rates to these specific clients. There is a full article on this insurance if you are looking to learn more on the subject.
It’s Out There
Yes, the best rate is out there. Trouble is, finding it can be frustrating, not to mention time-consuming. We’re here to help.
Our mission is to get you the best rate, period. Our Mortgage Advisors know the ins and outs of the mortgage market. Finding a needle in a haystack is what we do.
Contact a nesto Mortgage Advisor today and see how simple it is to find the right mortgage.
All that will be left for you to do is to put that champagne on ice and plan your housewarming party. 🍾
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