After years of working very hard, you have finally decided to become a homeowner. After carefully planning your finances, preparing cash for a down payment, and coming to several open houses in your target area, the time has come to go around and arrange for a mortgage.
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Tips for First-time Homebuyers: How to Get the Best Mortgage Rate
Fortunately, competition among mortgage lenders remains fierce, giving homebuyers like you a better position when negotiating for better rates and terms. But just like in any battle, it would be difficult for you to win if you come to the field unarmed. Here are simple, yet effective tips on how to get the best mortgage rate in the Canadian market.
Get a higher credit score
Lenders will automatically check on your credit score to determine your credit worthiness. If you have a good rating, you would more likely be offered better rates on your mortgage. Remember that almost all financial institutions look at risks as a great factor when assessing an individual’s ability and responsibility in managing finances. To improve your credit score, make sure to regularly pay all your credit card debt and all your other bills on time. Also refrain from spending more than 30% of your card’s available credit limit.
Present your employment/business ownership record
Home loan providers also think that people who are employed and who have a steady income for at least the last two years are less risky as borrowers. If you have a business, presenting them your business cashflow for the last year or two is like assuring the lenders that you have the financial capacity to repay loans.
Set a huge amount for down payment
Many lenders are not very strict when it comes to requiring down payments to home loans. Across Canada, you can shoulder at least a 5% down payment on a home loan. But if you really want to attain or negotiate for a more competitive interest rate, you could set a good impression by offering to pay 20% or more in down payment. In general, loan providers think that a huge down payment is an indication of the loan applicant’s commendable financial strength, which lowers possibility for risks.
Opt for a closed-term mortgage
There are two major types of available home loans based on duration or term: open and closed. An open-term loan will allow you to settle the loan amount before maturity or possibly transfer the loan to another person without incurring any prepayment penalty. A closed-term loan will require you to stick to the provisions of the mortgage from the time it was made effective until its maturity or end of term. Lenders usually impose better rates on closed-term mortgages, though you have to carefully think about it because there could be unforeseen circumstances in the future that will make you want to settle the loan earlier.
Go long term
For the budget-conscious homebuyers, a mortgage with longer term will take lower interest rates. If your loan has a 30-year term, it would have a lower rate compared to a loan with a 10-year maturity. However, you might not want to prolong your loan duration as doing so would also lead to a larger loan amount overall.