Have you ever taken a loan to buy a home? Can you recall the mortgage rates?
The basic concept behind taking it is that first the down payment is deducted from the price. Next the remaining amount is divided into installments. Lastly, these installments are to be paid as per the contractual periodicity.
Every time someone takes out a mortgage, it becomes a legally binding contract. Moreover, the house that is still not paid for becomes collateral to get the loan. It is a big commitment.
To make sure that you are on the right page, we have 10 tips to help you get the best mortgage rates in Canada. So, let’s get started.
Tips to Get the Best Mortgage Rates in Canada
You cannot even fathom the repercussions of paying the wrong rate of interest on home loans. At least 30-40% of Canadians suffer from it. Here are 10 tips that will assist you in getting the best rate possible in Canada.
1. Research About Mortgage Rates
If you believe that one mortgage fits every homeowner’s dream, then you are certainly wrong. There are multiple types and each type comes with a different rate of interest. So, when you think of taking one, try researching other kinds as well.
One such type is Prime Mortgage. It is for those who have a credit score above 670 and have paid at least 20% of the purchase price as a down payment. For such buyers, the interest rate is generally low.
Below 670, you fall under Subprime Mortgage. In this the rates are high and it is more riskier.
2. Reduce Debt-to-Income Ratio
The fastest way to get the best mortgage rate in Canada is to lower your debt-to-income ratio. The Housing Corporation of Canada has prescribed a certain percentage. According to them, keeping the GDS around 39% or maybe lower TDS under 44% is the best.
GDS is your gross debt service which means the income portion that covers the monthly housing costs. On the other hand, TDS is the total debt service.
3. Improve Credit Score
One cannot improve the credit score in an instant. It requires being punctual to pay off the debts. If you have any underlying credit card bill or any other debt that is outstanding for a long time consider repaying it at the earliest.
Your credit score will improve gradually and you can get better rates. If you are already in the range of 630+ then you are almost there.
4. Maximize Income Stability
Having a steady income is proof that you will not default on mortgage payments (it is highly likely, not 100% surety). To get started with that, you have to do some self-assessments and compare your monthly in-hand income with the expenses.
One way to get stable is to reduce extra expenses. You can also work extra to get more money. Hence, hustle for your dream home.
5. Keep your Employment History Ready
Before taking any home loan, keep your employment-related documents ready. A Mortgage is a one-time big commitment. Lenders will try to know every financial aspect of your life because it will determine how steady you are to take the loan and repay it in the future.
It will also create a good impact on your lender that you have been employed successfully in the past.
6. Save more
If you pay a bigger DP, then the size of the installments will automatically reduce. This also means that you can get the benefits of a lower rate of interest.
There is also a belief that if your down payment is 20% or more, then you will get the desired rate for your remaining mortgage term.
7. Make use of Cash Reserves
Apart from your employment records, some lenders might also check your savings. It is a safety measure to see if you have some cash reserves with you in case your regular income source is tucked away.
To be one step ahead, you can calculate a rough amount of your installments and start saving at least 3-4 months before it. This way you will never fall short of money when it is due.
8. Consider Prevailing Mortgage Rates
Presently, the interest rates are variable. Therefore, without doing any prior scanning, you cannot get the best rate. Most people try to buy during times when interest is comparatively low.
Once the installments begin, there is no denying that they will last for years and years. Hence, better to be vigilant now than repenting later on.
9. Compare Low vs. High Mortgages
By now you must know that paying <20% as a down payment means the remaining portion will be bigger. It will be divided into bigger slots, and interest rates will make it as big as a mountain. To protect you from such high mortgages there is mortgage insurance.
Likewise, there are insurance brokers that will help you get the desired mortgage and the insurance for the same afterward. Hence, make a comprehensive analysis to see if you fall under the “high mortgage category” and decide.
10. Shop Around
If you have outrightly followed every tip, you are already one step ahead of the rest of the Canadians who are buying a house via loan. The only thing remaining for you is to shop around.
It means checking all the nearby banks, lenders, and other providers. Get all the necessary information from them about prices, rates, and other terms. Because once you take a mortgage, you have to fulfill whatever is decided via the contract.
Best Mortgage Rates in Canada: Final Thoughts
If nothing goes the way you want, always seek help from a broker. Even though he will cost you a bit, as a mediator between you and the lender, he can ensure that everything goes right. Mortgage rates are skyrocketing, and those who fall into its trap are forever indebted.
Be mentally and financially ready to get involved in the property market of Canada. Now and then, people are getting scammed and looted unnecessarily. It will cause no harm to have someone with all the required knowledge. Make your housing dream a reality
What do you think is the biggest mistake new home buyers make? Comment down below.