What affects your mortgage rates
Mortgages can be confusing, especially since there are so many things to consider. There is one particular detail that tends to get swept under the rug and that’s what factors an interest rate is based on. Interest rates are also sometimes called the Annual Percentage Rate, or APR for short, and this definition alone makes it clear what factors influence its value.
In order to make an educated decision about purchasing a home and getting the best mortgage rates and programs, you have to understand how a mortgage works.
Factors that affects your mortgage rates:
If you are the one applying for financing, you need a credit score that’s above 580. If your credit score is higher, you have a better chance of qualifying for financing than someone with a lower score. It also helps if there is only one borrower on your loan as it reduces the risk for lenders and may lead to improved terms such as lower interest rates.
Determine Loan to Value Ratio (LTV)
This term refers to a ratio that determines the amount of money you’re borrowing per dollar of the overall value of your home. There are main variables such as sales price, appraisal value, and down payment that affect this ratio. Because lenders like to see lower amounts borrowed for a percentage of home value, if you were to put about 20 percent down on a $500k house with an LTV ratio of 80%, it would make the lender feel more comfortable lending to you since they typically look for ratios below 80%. As an example, let’s say you bought a $500k house with $100k down (20%) = $400k (80% LTV).
Insured vs. uninsured mortgage
If you use 20% or more of your home’s value as a down payment, you will be considered a home owner with less risk to the mortgage lender. If you put less than 20% down, you may have to pay for mortgage insurance so that the lender may be protected if you stop paying your mortgage loan. Typically, depending on the insurer, this can affect your borrowing power and interest rates for your monthly loan payments.
Choosing fixed and variable rates
There are many factors that impact mortgage rates, including your credit score and how long you plan to keep the loan. When it comes down to a choice between fixed and variable rate mortgages, the main determining factor between them is the thought of rate fluctuations. Variable rates vary based on economic fluctuations while fixed rates generally refer to securities markets and act as a buffer against monthly fluctuations caused by inflation or changes in interest rates.
Rate determines based on location you choose
Location, location, location! It’s important to choose your home carefully to make sure it suits your needs. Some factors worth considering are the age and condition of a property, parking opportunities (or lack thereof), as well as any additional features like in-unit laundry. Your address can also determine interest rates. Homes located in provinces with more competitive housing markets will typically see lower interest rates, simply due to supply and demand. On the other hand, with less movement and competition will most likely have higher rates
The final factor to consider is your income level. While the rate you get on the mortgage does not directly affect this, it does have a significant effect on how much you are able to pay back each month because of your purchasing power and how far out in time you’re able to stretch your payments.
Mortgage rate is one of the main factors for house buying. Mortgage interest rate may affect your buying decision.
How to find the best mortgage rate
Getting a mortgage is a process that can be daunting for first-time home buyers. That’s why it’s important to get educated about the terms, conditions and process of getting a mortgage.
Consult with the team of professionals powered by Dominion Lending Centres, Concept One Financial Group is a team of mortgage professionals work for our customers – not the lenders – to ensure our customers receive the best rates and products available in today’s marketplace. Whether they are looking to purchase their very first homes or upgrade to a new home, mortgage renewal, refinance for equity take out, purchase investment properties.
Our lending solutions are catered for the conventional, self-employed, new immigrant, and non-resident; residential and commercial mortgages; Insurable and uninsured. As is customary in the field of Canadian mortgages, we deal with big banks, smaller lending institutions and private lenders. Each client’s financial needs differ, which is why we work with a variety of lenders.