Is Rate King? Understanding the Importance of Fit and Affordability in Your Mortgage
When it comes to mortgages, rate is king for many existing and future homeowners-but should it be? The idea that chasing the lowest rate possible is the best strategy when choosing your mortgage is a common, but frankly misguided notion. Understanding what is a competitive rate and how much you should reasonably expect to pay in interest is very important, however, finding a mortgage that also fits your financial needs is crucial.
What Does Fit Mean?
You may be thinking “a mortgage that fits me best is one that fits my wallet best!”. While your mortgage payments shouldn’t break the bank, there is a lot more that determines how you (and your mortgage advisor) should be weighing out your options. Your financial situation, family life and future financial goals play a huge role. For example, is this the beginning of your journey as someone who aims to save and invest in your real estate? Or maybe you are a seasoned property investor who is needing to adapt to a changing housing market? On the other hand, your family could be growing or your adult kids might be moving out. These are all elements that should be considered when looking at term lengths, fixed vs. variable, lender types and more.
Okay, NOW We Can Talk About Rate.
When it comes to finally talking about the numbers behind your mortgage, it is helpful to know what goes into how your rate is calculated. Unfortunately, this is far less black and white than it was a few years ago. New mortgage rules that were implemented in early 2018 have greatly complicated who can qualify for what rate. This also makes it much more difficult for mortgage professionals to quote you an accurate rate right away. This can make for a lengthy initial process but be patient! The more complete of a picture your advisor has, the better equipped they will be to find you the best fit AND quote you a reliable rate. If someone is promising you a rate after asking just 2 or 3 questions, be wary.
So What Determines Your Rate?
Your Credit Score– and not just any score. Even if you have pulled your credit score through a service like Equifax or TransUnion, the score that you are familiar with is not the score that your advisor or the banks will see. Financial institutions use a score that is calculated differently, meaning what you see could be higher or lower than what they see on their end.
Down Payment– How much you are putting down, where you’re getting the money and how much you are borrowing compared to the value of the home are all things that will impact your rate.
The Property– Where is it? Will it be a rental property? Has it been assessed recently? The home itself and how you will use it after purchase are all things that change the rate that can be accessed.
Your Financial Situation– Are you employed? How long have you been there? Have you recently changed industries? Having a stable source of income greatly reduces the risk of lending you money in the eyes of the lender. So, without asking the right questions about income, a rate cannot be properly quoted.
At the end of the day, there is a lot that goes into getting the perfect mortgage for you and your family.
Finding an advisor that is willing to walk you through the process and keep you educated and comfortable with decisions being made isn’t easy, but it is certainly worth it.
Contact Tim Lacroix today to get reliable and educated advise on all your mortgage needs.