If you are currently shopping for a mortgage interest rate, this article should be both helpful and insightful. When you know what you’re looking for you can ensure the conditions that sometimes apply to the really low interest rates fit your financing needs. And when you are educated and prepared to negotiate, the rate shopping process can go a lot quicker. Here are a few key details you should be prepared to discuss when you’re seeking mortgage financing.
Projected Closing Date – some interest rates offered by the many mortgage lenders come with different rate hold periods, knowing if you are closing in 30 days or 6 months makes a difference. If you’re just looking for a pre-approval rate, be prepared for the interest rates to be a bit higher as the really low rates are presently only available for “live deals”. Live deals being a purchase with an accepted offer, a mortgage refinance or renewal.
Qualifying Income Type – You need to know your qualifying income type. Some lenders will add a premium to the interest rate if you are self-employed and “stating” your income, in other words, you are not able to provide Notice of Assessments from the government confirming required income to qualify for the mortgage amount you are requesting.
Downpayment or Equity Amount – This affects whether or not your mortgage will be insured by one of Canada’s 3 mortgage default insurers. Some lenders offer lower interest rates when your mortgage is insured as this means less risk for the lender. The magic number is 80%, your mortgage will likely require default insurance if you’re financing over eighty-percent of the homes value.
Bruised Credit– Some low rates come with minimum credit requirements, having an idea of what your credit score and credit history actually is will be helpful when you’re rate shopping. Equifax.ca is the best place to check your credit.
These are the main details you should have upfront before speaking to a mortgage professional. This ensures that preliminary rate quotes and rate information you are getting is accurate and applies to your mortgage financing needs. Below you will find information on determining what type of rate you should be asking about.
Qualify For the Most
Some mortgage terms come with a higher qualifying rate which can impact the maximum mortgage amount you are approved for. A 5-year fixed term (or longer) will enable you to qualify for a higher amount than a variable rate, open term, home equity line of credit or fixed term of less than 5 years. These shorter terms and variable rate products require the borrower to qualify at the benchmark rate that is set by the government that is significantly higher than the contract rate of the 5-year fixed terms and longer. Selecting the best 5-year fixed term interest rate could mean getting a mortgage that is approximately $70,000* higher than qualifying at the benchmark rate.
If you are budget sensitive and prefer a monthly mortgage payment that will remain consistent during your term, go with a fixed rate as you will have a steady payment for the whole length of the mortgage term selected. I find the 5-year fixed rate seems to be the most popular, though a 7 or 10-year term can provide you with long-term payment security at only about 1.25% higher. If you’re flexible on payment amount, don’t be afraid to consider a variable rate mortgage as those typically see interest savings over their fixed rate counterparts in the long term.
Maximize Your Pre-Payment Options
A lot of closed mortgage terms offer pre-payment privileges of 15-20% of the mortgage amount per year. This can allow you to pay off your mortgage quicker and if you need a mortgage that offers more flexibility than a closed term, look into a home equity line of credit or open mortgage term as these will eliminate a payout penalty and allow you to pre-pay as much as you want, whenever you want.
Double Check The Payout Penalties
If you break your term early, some lenders as well as some low interest rates feature a fee in addition to a payout penalty. The payout penalty will likely be the higher of 3 months interest based on the outstanding balance, or a calculation called the interest rate differential. Check your mortgage commitment before you sign on the dotted line to ensure there are no surprises if you need to pay out your mortgage early.
You should now have a general idea of what to expect when you’re rate shopping though I do want to say the rate is not everything; don’t overlook the payout penalties, pre-payment privileges or post-funding mortgage access. What I’m really saying is there are other features of the mortgage process that are just as vital as the interest rate. Ensure you have a detailed discussion about your specific financing needs, both current and future goals with your mortgage professional to ensure you are fully aware of all the details of your mortgage approval before you commit to it.
For all your mortgage needs, contact Jackie at 780.433.8412 or email email@example.com. Stay in the loop by following on Twitter @mortgagegirlca.
*Numbers based on $70,000 qualifying income with 5% downpayment, $500/monthly minimum debt payments, $3000/year property taxes, $100/month heating, 25 year amortization. Benchmark qualifying rate of 4.64% yields max mortgage amount of $264,275, 5-year qualifying rate of 2.40% yields max mortgage amount of $334,837.