The best mortgage is within your ability to ask the right questions. However, to know which questions to ask is not that straightforward. To get the ideal mortgage, you need to understand most of the following questions.
1. What’s a Mortgage Term?
Your rate is influenced by the mortgage contract duration, simply referred to as the “term,” and whether you prefer a variable or fixed rate.
2. Can I Provide Proof of Income?
Well, if you can’t answer “yes” to this question, say goodbye to the lowest possible rates. Failure to provide proof of income increases your risk profile and with it higher interest rates.
3. Where Is the Property Located?
The province where the property is located matters. For instance, Ontario, British Columbia, and Alberta have lower basis points (bps) than Prince Edward Island, New Brunswick, Northwest Territories, Yukon and Nunavut. If the property is located in the city, you will pay more than you would were it in a rural area.
4. What Is the Implication of the Closing Date?
You pay more for an extended closing date, which is the period within which you can lock in a guaranteed rate. For instance, a three to four months rate hold is more costly than a 30-day rate hold by not less than 10 bps.
5. Are There Prepayment Restrictions?
Most likely. You can be charged an extra 10 bps if you decide to prepay.
6. Are There Refinance Restrictions?
Yes. You may have to pay an extra 10 bps over and above the lowest rates should you want to refinance early. For instance, cashing out over $200,000 in equity attracts not less than 15 bps above the lowest market rates.
7. Can I Get a Good Mortgage Rate on Bad Credit?
Not likely! Nothing screams potential risk more loudly than a bad credit record. Some lenders won’t even consider your application. Instead, work on your credit record first before seeking a mortgage. Lenders who may decide to take a chance on you do so at a markup of between 50 and over 200 bps above the lowest market rates.
8. Can I Get the Best Rates on Pre-Approvals?
Very unlikely! You could end up paying between 10 and 20 bps more than the lowest market rates if you are yet to purchase the property.
9. Does My Credit Score Matter?
Sure it does. You could pay an extra 10 bps if your credit score is below 680. Some lenders won’t even touch you with such a low score. Even if you qualified for a mortgage with a score below 680, you are not likely to qualify for special rates and offers. If you succeed in getting a mortgage at a competitive rate with a below-680 credit score, the size of the debt you are allowed to carry is much smaller.
10. Is a Refinance More Expensive Than a Purchase?
Yes, by between 15 to 50 bps above the lowest purchase rates in the market.
11. What Are the Implications of a Property’s Purchase Price?
Well, you pay more or less bps. For instance, if the property is valued at over $1,000,000, you pay an extra 15 bps.
12. What Are the Benefits of an Insured Mortgage?
Insured mortgages attract lower bps. For instance, when choosing from one lender to another without changing the mortgage terms, you can save not less than 10 bps over the prevailing average discounted rates.
13. Do Amortization Terms Affect Interest Rates?
Yes. Lenders typically charge 10 bps more for an amortization of over 25 years.
These questions are by no means exhaustive. They nonetheless represent some of the most important questions that can guarantee you a great mortgage rate.