When you purchase a house, you should factor in not only how much you’re borrowing, but also the interest rate. While you may think you’re saving money when buying your home, it may result in you paying tens of thousands of dollars in the long run. So it’s important that you seek out the best mortgage rate. Follow these tips to help you secure the dream home you’re looking for.
Know Your Credit Score
To secure the best mortgage rates you can find in Canada, you should know your credit score. This is because if you manage to persuade a lender that you’re a low risk, your score will be low. By knowing your score, you can raise it by taking such steps as repaying particular debts, as it will reduce your debt-to-income ratio. Remember that lenders are interested only in those borrowers repaying mortgages. Your lender would feel okay about giving you an improved deal if you have a credit score of around 700-750.
While it can take a while to improve your credit score, making larger payments on credit card bills is one way to do it. You can also do it by keeping credit balances low, paying your bills on time, and paying off any collections that appear on your credit report.
Compare Rates
You’d be wise not to jump at the first loan from the first company you speak to. However, you also need to remember that, seeing as each application impacts your credit score, you need to avoid making multiple applications. That’s why it would benefit you to speak with a mortgage broker or an online broker, as they can shop around on your behalf. Online brokers and mortgage brokers like Altrua Financial can explore multiple lenders to work out the best deals, and your credit history will only be checked once.
When you shop around, you should bear in mind that different loan types come with different interest rates. As your mortgage rate will be with you for years, you should choose wisely in order to save yourself as much money as possible.
Consider How Long You’ve Been Employed in Your Present Job
If you’ve been with the same employer for at least two years, it’s the right time to complete a mortgage application, rather than before. You should know that lenders will be more favorable towards you if you’re employed, as opposed to being self-employed or a freelancer. So if you aren’t employed by a company but your spouse is, you’ll likely be given a much better rate if you take out the mortgage in their name, rather than yours.
Put Down a Minimum of 20% of the Cost of the Home
While there are mortgages that allow you to make a smaller down payment, you can reduce your interest rate if you put down 20% or more of the property price. If you pay less, you may find that your interest rate is higher and you could be on the hook for CMHC insurance or mortgage default insurance. This could increase the total amount you’ll pay out.
Utilize Your Cash Reserves
In order to ensure you have sufficient funds saved up for your mortgage should you find yourself unemployed, lenders will then look at your savings. They like to see you have multiple months of mortgage payments saved up to feel you’re less of a risk. It’s also a sign that you take financial responsibility. For this reason, it would be wise for you to save four months’ worth of mortgage payments and ensure you’re offered a favorable mortgage rate.
Reduce Your Debt-Service Ratio
This is the percentage of your monthly gross income used to repay your debts. Lenders use this to assess your level of risk. So you need to keep your Gross Debt Service – housing costs covered by monthly household income—less than 39%, and Total Debt Service under 44%.
Improve Income Stability
Your preferred lenders will feel confident that you’re less of a risk when it comes to potentially defaulting on your mortgage should you increase your income stability. One way to improve it is to perform a self-assessment so you know your monthly expenditure versus the amount of money you’re earning. This will provide you with a clearer picture of the different ways that you could increase your earnings and reduce your expenditure. Requesting additional hours at work, looking for part-time or freelance roles, and putting a stop to unnecessary expenditure are all valid ways of improving income stability, making you more appealing to lenders in the process.