When you’re on the market for a new home but need financial support, a mortgage can help you proceed with your purchase. It’s important to find a mortgage that is affordable and fulfills your requirements.
A CMHC Mortgage Consumer Survey found that nearly half (47 percent) of homebuyers used online and offline resources to gather information about mortgages or buying a home. Many homebuyers find value in learning about the mortgage process because it allows them to make informed decisions about their purchase.
If you’re looking for a mortgage, consider a few essential factors that could change the way you proceed with your purchase.
A mortgage rate is an interest charged on a mortgage and plays a critical role in the funding process. The lender decides the rate, which can be fixed or variable, depending on your agreement with the lender. When lenders determine a mortgage rate, they consider a range of factors, such as the prime rate, the borrower’s credit score, home price, and loan type.
Choosing between fixed and variable rates is important because it reflects your future payments. When choosing a variable rate, your mortgage rate can fluctuate throughout your mortgage term, depending on a benchmark rate or index, such as the prime rate. Fixed rates remain the same for a specific period as agreed upon in your initial mortgage contract.
When you choose the fixed option, you can look into 5-year fixed mortgage rates as this is traditionally the most common type of mortgage in Canada. Many borrowers fix their rate for 5 years, which is considered a good balance between the security and cost of locking in a rate for a long time.
Type of Lender
Your mortgage terms can vary depending on the type of lender. The most commonly used lenders are private and direct lenders.
Direct lenders, such as banks, generally offer more competitive rates. However, receiving a loan from them might be more challenging as they are likely to have more clients and may have a stricter acceptance policy.
Private lenders can close your loan faster, simplifying the process for you. However, private lenders generally charge a higher interest rate than conventional mortgage lenders, such as banks. Homebuyers who don’t get bank mortgage approval often seek help from private lenders, indicating higher investment risk. Private lenders charge higher rates in this case to reduce their risk when lending money. Credit: Kampus Production Via Pexels
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Your mortgage terms can vary depending on the amortization period, your financial status, and the type of lender you choose. It’s essential to consider the terms and learn how your mortgage amount is calculated to avoid any financial blunders.
Agreeing to terms that don’t protect you or can cause financial strain in the long term can cause unnecessary stress. Speak to a mortgage broker or a lawyer to help you understand mortgage terms if you’re unaware of what your next steps should be.
Your Financial Health
Your credit report, down payment amount, and income play critical roles in the mortgage selection process. When you can afford to put down a larger down payment, your mortgage rate is likely to be lower as the lender invests less money, reducing their risk level. Similarly, a higher credit score also increases your chances of a lower interest rate as the lender will perceive you as a trustworthy borrower.
It is also essential to have a steady income when seeking a mortgage because lenders want to ensure that you can repay your loan. Having a steady income also reduces the stress of trying to gather money every month to make your payments promptly.Credit: Alena Darmel Via Pexels
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Housing Market Condition
After figuring out your affordability, it’s important to look into the housing market status in the region where you want to purchase a home. Take time to learn about the law of supply and demand because it is a basic economic principle that helps you understand the prices of homes. When there is a growing demand for homes or a lack of supply, the price of properties is likely to be higher.
Learning about the housing market condition also enables you to understand if home prices may fluctuate in future. When you research the trends, you can compare home sales and the number of newly listed properties to determine if it’s the right time to purchase.
Getting a Mortgage
Once you’ve learned about the critical factors affecting your mortgage, you can make an educated decision about the best way to proceed. It may be helpful to seek professional help to ensure you don’t make any errors that could become a financial burden in the long term. Searching for your perfect mortgage will be easier when you know the basics!