If you are in the market for a mortgage, chances are you’re looking for the lowest interest rate you can get because it means a lower monthly payment. If you are shopping online, you’ve probably seen a great rate and then in fine print is ‘O.A.C. (on approved credit)’ or ‘rates subject to change without notice’. Those are important because they basically mean that not every borrower is going to qualify for the best rate. Below are just a few of the details that affect interest rate eligibility, so you can be prepared when you go shopping.
The lenders risk is reduced when CMHC, Genworth, or Canada Guaranty insures a mortgage as it means the insurance company will pay the lender in the event the borrower defaults. Some discounted rates are only available if the mortgage is insured as a result of this.
If you can qualify based on a 25-year amortization, there are more lender options than if a 30 or 35-year amortization is needed. There are only a few lenders offering longer amortizations and as a longer amortization means lower payments, there’s less incentive for that lender to offer their lowest rates to those borrowers.
Closing date (Rate Hold)
Depending on how the lender gets their funds to finance the mortgage, the quicker they start earning interest on it, the better. There is motivation for some lenders to offer deeply discounted rates for mortgages closing within 30 days or less as they will start earning interest sooner than later.
It is rare to get the lowest discounted rate on a pre-approval as the rate is just being ‘held’ while the borrower goes house shopping. Most lenders reserve their lowest rates for ‘live’ deals, ones with a property and firm closing date.
A higher credit score, accompanied with positive repayment history, should get you a lower rate. If there’s repayment issues, a lender may consider the borrower higher risk, which means the rate may be a bit higher.
Verifiable income versus stated income
Verifiable income means the earnings needed to qualify can be supported by official third party documentation. For employees, this is easy. It gets trickier for the self-employed and there could be a rate premium if a stated income product is required to qualify.
Some lenders have an agreement with a specific mortgage broker or mortgage brokerage that affords their borrowers discounted rates that others don’t have access to. This is usually the result of the broker/brokerage having a large volume with that lender, and being rewarded for their loyalty with rate discounts.
It’s assumed a borrower living in a property is less likely to default on their mortgage than a landlord with tenants. Most people will prioritize the payment required to keep a roof over their head when funds are limited. It’s not uncommon for a premium to be added to investment/revenue property interest rates.
Each Lender has a right to set certain requirements that must be met in order to be eligible for their lowest rate. The above information does not replace a detailed conversation with a trusted mortgage professional about your specific scenario and financing needs, as there are always exceptions to the norm.
If you have any questions about interest rates– contact Jackie Woodward at 780-433-8412 or firstname.lastname@example.org.