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In your search for a mortgage, you should meet with several lenders to interview them and discuss the terms and process. During this time, you need to properly gauge the terms they are offering and the advice they are giving to guide you through the process. Not all lenders are created equal and the key is to come ready with the right questions to ask.

Here are three questions every applicant should ask a lender during their first conversation.

How to Decide Between Fixed or Variable Interest Rates?

One of the biggest decisions you will make, outside of choosing a home and making an offer, is what type of interest rate to choose. Your lender must have the market knowledge and a sense of how the banks will act to guide you to the best decision for your situation. There’s no one size fits all.

A fixed interest rate means the rate will stay the same throughout the duration of your mortgage. This is a good option if the rate is low and there are signs that it will spike at some point. A variable rate is volatile and can increase or decrease based on what The Bank of Canada does. Typically, you are signing up for a higher rate with the hope that it will drop at some point, meaning you can put more towards the principle.

Can I Pass the Mortgage Stress Test? 

The stress test has been a popular point of discussion since late 2017.  Every lender you meet with should outline the parameters of the stress test. They should also honestly evaluate whether your application could pass with flying colours. A lender should acknowledge when an applicant could have trouble passing the stress test and then offering advice on how to better their application.                                                                        

What’s the Pre-Approval Process?

Finally, inquire about the steps it takes to be pre-approved for a mortgage. Your first conversation with a lender should give you the tools to prepare the best application, as these things are rarely straightforward. Get a list of everything you will need so that you can create a comprehensive checklist. Be sure to ask if there are any tips that can help you get approved.

Contact us today to put these tips into practice and to get more information about mortgage approvals.

In October 2017, the Federal Government announced that a mortgage stress test would be applied to all mortgage applications in Canada. This news caused a firestorm of opinion and questions as many believed that it would block tens of thousands from homeownership.

What do current and future homebuyers need to know about the stress test, and what positives can be drawn from this Government intervention?

The Basics

Under this test, homebuyers must prove that they can afford a mortgage at either a five-year rate close to 5% or two percent higher than their current rate, depending on which is higher. The idea is to prove that a household will survive in the event of an interest rate hike.

The stress test is now embedded into the pre-approval process and is unavoidable for the most part. Homebuyers must evaluate their ability to pass the test or speak to a mortgage expert.

Insured and Uninsured First-time Homebuyers

An uninsured borrower is one who puts a minimum of 20% towards the purchase price as part of the sale. For borrowers who have a down payment below 20%, they must pay additionally for mortgage insurance.

Many uninsured borrowers assume that their down payment would exempt them from the stress test. Being able to pay a larger lump sum upfront doesn’t tell the lender that an applicant can carry the cost of a home monthly. Both insured and uninsured borrowers will be subjected to the stress test.

Mortgage Renewals

The stress test is not retroactive, meaning if your mortgage was approved prior to October 2017, then there will be no impact on your situation. In addition, if you renew with your existing lender, then you are exempt from the stress test. With respect to renewals, if you switch lenders then you will be subjected to the stress test during the process. Be sure to speak with your broker to confirm as this can vary from lender to lender.

The best advice is to not get too stressed about this situation. This new rule is designed to protect borrowers and lenders in the long-term against any market volatility.

There is a lot of information to sort through so speak with a mortgage specialist to review your situation and start the pre-approval process.

Stress testing is a risk management tool that tests the ability of borrowers to withstand an interest rate hike. When the Federal Government implemented a stress test in 2017, people started searching for alternative methods to secure a mortgage and different ways to enter the housing market.

For a mortgage application to be approved, the applicant must be able to carry a loan with an interest rate around 5%, even though the actual rate will be lower. This will reportedly block 50,000 Canadians from homeownership and has forced many to become more creative and prudent.

Alternative Lenders

In their pursuit of homeownership, people have been ignoring banks in favour of alternative lenders whose approval process is less stringent and they are not as tied to the Bank of Canada. There’s a lot of value to non-traditional lenders.

People must cast a wider net as they try to secure a loan. The strategy is to meet with different lenders to determine who has the most favourable terms and offers you the best chance at approval. They can offer better rates, and in some instances, are more open to negotiating terms.

Other Options

Mortgage stress testing isn’t going away, in fact, the Government and the Bank of Canada might implement more regulations to stabilize the market and prevent borrowers from defaulting on loans. To counteract this, borrowers can take certain measures to make their mortgage applications more attractive.

A higher down payment and paying down your debt can help your application withstand a stress test. Additional assets can also help. If you are looking to get a mortgage for an investment property, then partner with an experienced person who has good credit and can increase the down payment. Granted, some applications with big down payments will be rejected but it can still make an application more appealing in the eyes of lenders.

There are no tricks to beating the stress test or getting approved for a mortgage in 2018. For those looking to sell their home or enter the market, you need to review your situation with a mortgage specialist and determine if now is the right time. The other option is to simply wait a bit so that you can decrease your debt, increase your salary and assets and present a better application.

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.