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Buying a home is a complicated process that involves banks, real estate agents, lawyers and a ton of moving parts. The very first step a buyer should take is to get pre-qualified for a mortgage. It’s not a necessity but it helps remove murkiness and confirms that people can borrow funds to buy a home, and how much they will have to work with. It will save you time and possibly heartbreak as you search for your first or next home.

It’s a simple process and qualification is based on your financial profile. Here are some tips to help you get pre-qualified.

Credit Report

A credit report is a snapshot of a borrower’s credit history. It outlines their debt history and their ability to repay loans. It is a vital document for lenders to review as they make their decision.

Typically, you need to provide a credit report as part of your pre-qualification application. If you have a poor score, consider holding off for a few months as you work towards improving it. During this time, focus on paying off debts, pay incoming bills on time, and don’t borrow any money.

You can also meet with a credit counselor to create a strategy to improve your score.

Your Financial Information

Pre-qualification doesn’t require you to submit all your documentation but you need to have your numbers in order. Numbers refer to your financial information, which can include household income, assets, liabilities, down payment amount, bank statement and the previously mentioned credit score.

Before contacting your lender to start the pre-qualification process, consult with your bank to get your financial information in order.

Be Honest and Transparent

To get pre-qualified, a lender needs to assess your financial situation and history. To do so, you need to provide accurate information. Under no circumstance should you try to conceal a debt or lie about your credit score. Not only will a lie on your application result in rejection, it could put you in bad standing with the lender.

Contact us today to learn more about mortgage pre-qualification, or to start the process.

When applying for a mortgage, one of the most pressing decisions a borrower must make is with respect to the interest rate. Should you lock into a fixed rate? Should you take a chance on a variable rate? These are important questions that need answers so that the homeowner doesn’t find themselves saddled with a mortgage they can’t afford because the rate increased.

Knowing what can cause the interest rate to change can help you make the right decision. This knowledge can help you predict how the interest rate might fluctuate over the duration of your mortgage, and ultimately, prepare for any changes.

The Health of the Market

It’s normal for interest rates to increase when a market cools down. This gives buyers less money to purchase a home with and can lead to housing prices dropping as sellers look to unload their properties.

The housing market is directly tied to interest rates so be sure to understand the state of the market. Whether it is prosperous or struggling should inform your mortgage terms.

The Bank of Canada 

The Bank of Canada influences interest rates as part of their overall economic and monetary strategies. This institution can dictate rates, including the overnight rate for banks, and can impact the Canadian exchange rate.

Owned by the Federal Government, The Bank of Canada is tasked with ensuring the financial welfare of the Canadian economy. What’s important for homebuyers to know is that The Bank of Canada takes the approach of steady growth and to avoid jarring interest rate fluctuations.

Provincial and National Economy

As mentioned, interest rates play off the supply and demand of the housing market. When demand is high, lenders want to charge more to borrowers to capitalize. When demand is low, lenders want to charge less to spark business.

Economic conditions fluctuate interest rates making the Provincial and Federal Government the biggest factor in determining the interest rate. The Government will act in accordance with the state of the economy and pursue stimulating it or cooling it through raising or lowering the interest rate, which will trickle down to borrowers.

The more borrowers understand the nature of interest rates, the more likely they are to make the right decision with respect to choosing the mortgage terms that work for them.

Applying for a mortgage loan is a thorough process that requires an in-depth financial audit. After choosing a lender, borrowers should get their application in order and the best way to do it is by using a checklist.

A succinct checklist can help you procure and organize all the different documents you will need to get. This will help your application avoid rejection due to missing information.

Here’s a checklist you can use for an upcoming loan application:

Employment Documents

You will need to submit a recent pay stub or pay stubs. All employment documents should be written and signed by your boss or the human resources department. It must be within 30 days of your application submission and detail your position, seniority, salary, hourly rate, average number of weekly hours and whether you’re a full or part-time employee.

Seasonal and part-time employees might need additional documents to verify their income.

Property Documents

You will require the following with respect to the property you want to buy:

• The mailing address of the property
• Proof of down payment
• Signed mortgage agreement
• Sales contract outlining the offer
• Listing and legal description
• For condo purchases, you will need a declaration, condo fees, and all documents pertaining to the health of the property
• Lawyer’s contact information

Asset and Liability Ledger

You will need to provide the lender with all your financial information. Your bank should be able to issue these documents and most people can access it via their online banking account.

You will need to provide a list of your assets and their value, and a list of your liabilities including total amount and repayment terms.

For your ease, here’s a checklist you can copy and paste and use as you prepare your application. Remember, variables exist depending on the lender, your financials and the loan amount. In addition, the lender can request additional documents.

Checklist:

• Personal information (full name, date of birth, SIN, contact info marital status, dependents, current address)
• Pay Stubs
• Letter of Employment
• Mortgage Pre-approval (if applicable)
• Bank statements
• Value of RRSPs
• Banking info
• List of assets
• List of liabilities
• Credit score
• The mailing address of the property
• Proof of down payment
• Signed mortgage agreement
• Sales contract outlining the offer
• Listing and legal description
• For condo purchases, you will need a declaration, condo fees, and all documents pertaining to the health of the property
• Lawyer’s contact information

While home owners have enjoyed low interest rates over the last number of years, the days of cheap borrowing are coming to an end. Interest rates are on the rise. In fact, the Bank of Canada has raised its rates three times over the last 12-months and more hikes are in the forecast.

Interest rate hikes result in Canada’s big banks and trust companies raising their prime lending rates, which impacts mortgages. This means it’s going to cost a lot more to borrow money and cost more to carry debt.

For homeowners, the benefits of a variable rate mortgage are being stripped away. Those looking to renew their mortgage have big decisions to make: Do you go for a variable or fixed rate mortgage?

What Is a Variable Rate Mortgage?

A variable rate mortgage fluctuates, as often as every month, based on changes on the prime lending rate, which is set by the lender.

Ultimately, this results in how much of your mortgage payment goes toward paying down your mortgage and how much goes to interest. When the banks’ prime rate goes up, the variable mortgage rate follows suit which results in higher monthly mortgage payments. In some cases, your mortgage payment will stay the same, but a smaller portion will go to pay down the mortgage and a larger portion will go to interest.

Over the last number of years, the Bank of Canada had been lowering how much it charges banks to borrow. This was good news for those with mortgages. But because the Canadian economy is doing well, the Bank of Canada is now raising its rates.

Since variable rate mortgages are priced off of Prime, Canadians holding these kinds of mortgages are now being hit with higher mortgage rates.

With a variable mortgage, you cannot reliably predict what will happen or what the prime lending rate will be, say, six months from today.

What Is a Fixed Rate Mortgage?

Over 65% of Canadians have a fixed rate mortgage. When you lock in with a fixed rate mortgage, the interest rate charged on the loan remains the same for the duration of the term of the loan. If interest rates soar, you only pay the amount you initially agreed to with your lender.

For example, if you chose a five-year fixed rate mortgage and your monthly mortgage payments are $2,000, you will be pay $2,000 every month for the next 60 months. It doesn’t matter if interest rates go up or not, your monthly mortgage payments, and the amount that goes toward the principle and interest, stays the same for five years.

Factors to Consider When Switching from a Variable to Fixed Rate Mortgage

There are a large number of factors to consider if you’re thinking of switching from a variable mortgage to a fixed mortgage.

Interest Rates

The biggest one of course is interest rates. Taking advantage of variable rate mortgages is a good idea when rates are low and expected to go lower. But that simply isn’t the case.
While interest rates are still historically low, that doesn’t mean interest rate hikes won’t hurt. It’s quite conceivable that interest rates could double from current levels over the near term. That means less money in your pocket and more money being wasted on interest payments.

When should those with a variable rate mortgage switch to a fixed mortgage rate? The best time is when interest rates are starting to rise, like they are right now. This doesn’t mean you try and time the perfect opportunity to switch to a fixed mortgage rate, it’s impossible to time the interest rate market.

Keep in mind, it’s not a good idea to wait too long. Interest rates have already turned around and are going up. And they’ll go up a lot faster than when they came down. The vast majority of Canadians prefer peace of mind, especially when it comes to finances. With a fixed rate mortgage, you know how much you’re going to pay and you can set your budget for the length of the mortgage terms.

Locking in a Fixed Rate Mortgage

Variable rate mortgages come with the option of switching to a fixed rate mortgage during the term of the loan. When it comes to traditional banks though, peace of mine comes with a cost. Not only are there penalty costs, but some traditional lenders insist that borrowers switching to a fixed rate mortgage sign up for a five-year term, regardless of what is left on their current loan.

Breaking a Variable Rate Mortgage for a Fixed Mortgage

When breaking a variable rate mortgage and switching to a fixed mortgage rate, traditional lenders will hit you with a penalty of around three months’ worth of interest at the current rate. Switching mortgages can also involve a lot of paperwork and legal fees.
Not only that, homeowners switching their variable rate loan for a fixed mortgage might only be eligible for rates offered to homeowners refinancing their mortgage, which is usually higher than the rates offered to homebuyers.

Canadalend.com, Helping You Secure a Mortgage

Interest rates are rising which means mortgage rates are going up. Because it’s more expensive to secure a mortgage, more home buyers and those looking to refinance are switching to fixed mortgage rates from variable rate mortgages. Not only does a fixed rate mortgage mean locking in at a low rate, more of the payment goes toward the principle over time, no matter how high interest rates go. To improve the terms of your mortgage, call the mortgage professionals at Canadalend.com.

How can Canadalend.com give you better options that the big banks and other private lenders? The independent, licensed mortgage experts at Canadalend.com work with hundreds of different private lenders. Many specialize in helping those who have bad or even no credit, are self-employed, and have unreliable income secure or switch to a fixed rate mortgage.

To find out what your fixed rate mortgage options are, contact Canadalend.com today or apply online and a Canadalend.com mortgage specialist will set up an appointment at your earliest convenience.