How Your Current Financial Situation Affects Your Mortgage Rate
The state of the economy and the health of the Canadian mortgage market have a direct impact on the rates being offered to the borrowers. However, there are some specific factors which do come into play when the terms and conditions of your mortgage are being decided upon. Most significantly your current financial situation is a major determinant for the rate of interest you will have to pay on the amount that you borrow. Here are some ways in which your current financial situation affects the mortgage rate you get.
The amount of money you make monthly helps the lender determine the amount you would be able to pay comfortably every month. Obviously, if you aren’t earning money, you cannot repay the amount you have borrowed. However, you need to be employed for the past two years to get a favorable mortgage rate. The risk is greater when lending to people with an unstable job history which leads to a higher rate.
You have to show how much money you have in the bank or in the form of assets before you can get the mortgage. This is because the lenders are interested in your ability to bear the upfront costs of the loan and also the down payment which you have to make. Generally, borrowers are not required to pay more than 5% of the amount of the mortgage as down payment but you need to have the money to make the payment on time.
If you are already making debt payments out of your current income, it would reduce your capacity to repay the mortgage on time. There are many types of debt which the average Canadian household has to bear. From credit card debt to student loan, any debt you have currently would have an impact on the mortgage rate you get. You should have a healthy debt to income ratio to get a favorable rate from the mortgage lender.
Your Credit Score
Last, but not the least, your credit score has an impact on the mortgage rate. While you don’t need to have a perfect credit score to get a mortgage approved, it is better for you to keep it between 750 and 850. That would represent to the lender that the risk involved in giving you the money for the loan is low and hence the rate you have to pay would be lower. The lender is likely to inspect your entire credit history so be prepared for it.
These are some of the ways in which your current financial situation impacts the mortgage rate you have to pay. Knowing about the factors which come into plays enables you to prepare in the best way possible for your meeting with the lender. This way, you ensure that you don’t have to pay interest through the roof. After all, a mortgage becomes easier to repay if the interest rate is low. So, improve your financial situation to get a favorable rate on your mortgage.