60% of Canadian home owners have a mortgage. Yet few really understand the factors that are involved in deciding their mortgage rate. Getting the best rate is important. On a $500 000 mortgage a +/-0.0025% mortgage rate difference can result in a $20 000 cost/savings over the mortgage lifetime. So what are the factors that impact mortgage rates? We have compiled the ten most important below.
- Location – Depending on which province you call home will affect your mortgage rate. Albertans often have to put more equity down to receive lower rates, where Quebec has some of the most attractive 10 year rates and Ontario is generally the most competitive province with rates.
- Rate Hold – If your closing date is in the far off future, then you will require a longer guarantee on your rate. If a lender’s rate and costs are driven up, then so is your mortgage rate.
- Refinancing – New buyers can have lower rates than refinances, but refinances can have lower rates than mortgage transfers. Lenders want to invest in purchases, so be aware that any movement on your mortgage can affect your rate.
- Home Type – Whether you live in a condo, co-op or any non-standard dwelling, lenders will often use higher rates on these homes because they can be considered higher risk.
- Income Property – Income properties or vacation homes can also be considered high risk to lenders and a higher rate is usually applied.
- Credit Score – A lower credit score will have an effect your mortgage rate, especially if you are carrying debt or have a small down payment.
- The Fine Print – The lowest rates in Canada come with stipulations and boundaries. Often times, lower rates have limitations on prepayments and you end up paying all the interest on your loan.
- Mortgage Insurance – If your down payment is less than 20%, than you will likely have a lower rate because your mortgage is generally insured. This is attractive to lenders because the risk on the loan is shared.
- Size of Mortgage – Larger mortgages have a larger risk to lenders so premium rates are tied to these loans in case of default.
- Proof of Income – If you are unable to provide lenders documentation of a stable income and your ability to manage your finances, your rate and down payment will certainly reflect that.
Looking for a mortgage? Contact Tim Lacroix at 403.648.1541 or email at email@example.com for a consultation.