Finding the best mortgage rates in Toronto involves accounting for the borrowed amount plus the interest rate. Things that can save you money now may later have a significant negative financial impact. Therefore, locating the best mortgage rate available with these seven tips is crucial.
How to Find the Best Mortgage Rates in Toronto
The following tips are the most important when searching for your best mortgage rate. They will assist you in managing your long-term financial goals, and equip you with the knowledge to know if what is being presented to you is truly a good deal—or just sounds like one.
1. Know your credit score
You must be familiar with your credit score for the best rates. In applying for a mortgage, you must convince a lender that you pose a low risk if you want a low rate. Examining your credit score will allow you to be aware of steps you can take to raise it. This may include repaying debts for a lower debt-to-income ratio.
Be mindful that lenders only want to deal with those who can repay mortgages. Lenders feel comfortable providing a better deal if your score is around 700-750. While improving it may be a lengthy process, you can start by paying larger amounts on your credit card debt, keeping your outstanding balances for credit cards lower, paying off collections, and paying bills in full.
2. Compare rates
It may be prudent not to accept the first loan offer you receive. However, it would help if you remembered that every application creates a hard pull on your credit score. Thus, you should narrow your search and not complete multiple applications. This is where online brokers and mortgage brokers can be beneficial.
These professionals can examine numerous lenders to locate the best deal. Note that your credit history will also be pulled only once.
While comparison shopping, you should be mindful of the different loan types and interest rates. Some loans will have higher rates than others.
3. Provide 20% of the home’s cost
While some mortgages will accept a smaller down payment, you can obtain lower interest rates if you can place 20% down on the property price. If the down payment is under 20%, you may need mortgage default insurance/CMHC insurance. This may increase your overall costs.
4. Consider your length of present employment
The best scenario is employment with the same company for over two years. Lenders will treat you favourably if your employer is a company rather than if you are self-employed or freelancing. If your partner has employment with a company and you aren’t, a mortgage should be taken out in their name and not yours to obtain a lower rate.
5. Decrease your debt-service ratio
The debt-service ratio is the percentage of gross monthly income used to repay a debt. When you borrow money, lenders use this ratio to evaluate risk. Keeping your gross debt service (housing costs covered by monthly income) under 39% and total debt service below 44% will look favourable to a lender.
To decrease a debt-service ratio, make higher debt payments, reduce debt, or increase your overall income. Each facet signals to lenders that you are a low risk.
6. Increase income stability
Lenders will see you as less likely to default if you have a stable income. To improve stability, examine your monthly spending versus earnings. It will enable you to see various ways to earn more while spending less. You can achieve this by working more hours, finding part-time employment or freelancing, and removing needless spending.
7. Utilize cash reserves
To ensure you have enough finances in the event of a job loss, make sure that you have enough money to cover your mortgage, as lenders will examine your savings. Lenders enjoy viewing several months of mortgage savings to ensure you are a lower risk. It further signifies that you are financially responsible.
The ideal situation is to save four months of mortgage payments for a reasonable rate.
Where are the best mortgage rates in Toronto?
At Northwood Mortgage, we pride ourselves on offering the best mortgage rates in Toronto. Contact us at 416-969-8130 to discuss your options with our team of professionals. You can also visit our website here.