One of the most popular questions I get is “what are your mortgage rates Jennine?” Unfortunately this question is not a black and white answer and there are many variables to consider when it comes to what rate will apply to your situation. The bottom line on what will determine what rate applies to you is how risky your situation is, and it may not be as easy as you think. Lenders base their decision on many different factors. Let’s look at some of these factors now.
First your credit score. Your credit is your financial story of how much debt you currently have, what debt limits you have access to, the history of your payments, how long you have had credit, how often you get your credit check, how much you use your credit, if you have had a consumer proposal or bankruptcy and of course your final credit score that is determined from all of the above. The rate you can qualify for will be based on your credit score and all of the above. Low rate lenders want to see a score of 600 at the very lowest and ideally you want your score to be at least 680 to allow you to qualify for the most at the lowest rate. It also depends on all things mentioned below on whether they will consider the application or not. Visit All About Credit blog post for more info on keeping up with your credit.***
Secondly lenders look at how strong your application is as a borrower. If you have pension income or you are a guaranteed hourly or salary employee that is not on probation and has a great credit score and history, your application will usually be considered as a strong application. If you are not guaranteed hours and have less than 2 years employment with your employer, or you are self employed, are on probation with your employer or have a lower credit score, your application may be considered more risky. There are many income scenarios that could apply but no matter the case, if your debt verses income ratios are high (otherwise known as debt service ratios), then you you will be considered riskier no matter what. Filling out a mortgage application will help your Mortgage Agent determine where your application falls.
Thirdly what term and amortization you want or will qualify for comes into play. There are different rates for different mortgage terms which is the short term length of time you are signing for your mortgage rate and conditions. Mortgage terms typically range from 6 months to 10 years and each term has a different rate. As well, your rate is based on your amortization which is the total amount of years it could take you to pay off your full mortgage. For an amortization of 25 years or less your rate should typically be lower than a higher amortization such as 30 years. With this said, you may qualify for more mortgage with a longer amortization which may be what is required to make debt service ratios work and qualify for the mortgage. The only way to know for sure is to complete a mortgage application so your mortgage professional can see where your numbers fall and what options you may have.
4. How much down payment do you have? As I mentioned in the beginning, mortgage rates are based all around risk, and the amount of down payment you have and whether your mortgage is insured/insurable or not plays a big part in the risk. Most home buyers aim to put 20% down on a property if they can to avoid paying mortgage insurance which usually makes most financial sense. However having an insured mortgage gives security for the lender and from their perspective should you decide to forego paying your mortgage, this insurance helps to secure that they would get paid this loan money back. Therefore rates for an insured mortgage are the lower because you are less risky with the insurance coverage which is paid for by the borrower. Once there is more than 20% down, with most mortgage products insurance is not required but depending on how much down payment you have, this will determine how risky your situation is. Basically from most lenders perspective, the more you put down, the less likely you will walk away from your home and the payments, therefore the less risky of a borrower you are. Those that that 20%-25% down may have a higher rate than those with 25%-30% down. And those that have 25%-30% down may have a higher rate than those with 30%-35% down. If you have more than 35% down, most lenders will offer you the same rate as the low insured rates you get with less than 20% down since you aren’t likely to walk away from this large amount of down payment money.
5. What are you looking to do with your mortgage? Are you looking to purchase a new home, renew an existing mortgage and change lenders to a lower rate lender, or refinance to take out equity? What you are looking to do with your mortgage can also determine which rate will apply to you.
If your renewal is coming up and you are looking to switch your mortgage to a lender with lower rates and your mortgage currently has mortgage insurance, you may still qualify for the lowest insurance rates since your insurance can potentially move with your mortgage to the new lender. If you don’t have insurance on your mortgage but the terms and conditions of your mortgage meet insurer guidelines, you would potentially qualify for rates in the other scenarios in #4 based on how much equity is on your home.
If you have more than 20% down and are looking for a longer amortization than 25 years to lower your payments, your rate will usually be slightly higher as this is considered an uninsured mortgage. With it being uninsured you become more risky again and a slightly higher rate will apply to your situation. Don’t let this scare you though if this ends up being the case. Sometimes stretching your payments a little longer if you can, can allow you to qualify for more mortgage, and it might be just what you need to qualify for that home you have your sights on. In the big picture a slightly higher interest rate for your first term can be well worth it to live in your dream home.
If you are looking to refinance your mortgage and take out equity from your existing home to consolidate higher interest debts or loans or for any reason, this is also considered an uninsured mortgage. Again, with it being uninsured you become more risky again and a slightly higher rate than lowest rates will likely apply to your situation. Don’t let this scare you though …..these rates likely won’t be anywhere near the rate your high interest debts or loans are, and we may be able to relieve your monthly payments by hundreds of dollars by refinancing, so it can definitely be worth that slightly higher than lowest rates. We would look at your situation to make sure it made financial sense for you before moving forward with a lender.
So now that we’ve covered a few things that are considered into what rate may apply to you, we can go back to our original question “What are your mortgage rates Jennine?” As you can see, it’s an impossible question for me to answer for you until I do a little more digging on your situation and understand exactly why you are looking for a mortgage. If all of this information confises you, you are not alone and that’s what I am here for! It’s my job to know all of this information so I can make sure you are getting the lowest rate possible for your situation. I’m here to help you through this to make process easier for you every step of the way. 🙂
If you wish to know more about what rates would apply to you at this time, feel free to reach out from my website below and we can look into your specific situation through a mortgage application and credit check. With this information I should definitely be able to provide you with more feedback.
Jennine Hadfield Mortgage Advice
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Now that we’ve dug into some things that are considered when determining rates, let’s dive into some advertising techniques that could steer you the wrong way! Check out the “look out for advertiser rates that may seem to be too good to be true.