For many Canadians who are interested in buying a home, the first thing they will be worried about is their credit score. Some will also comparison shop to try and secure the best mortgage rate. However, there is more to lower mortgage rates than your credit history or comparison shopping.
In fact, there are a plethora of different factors that lenders will look at before determining whether or not you qualify for a mortgage, as well as what your interest rate will be. You can use our mortgage qualifier to find out what you’re likely to be offered and learn some techniques that will help you get a lower rate on your mortgage in Canada.
Income and Job Stability
Most mortgage lenders will prioritize borrowers that can prove that they have a stable job and income for at least the last two years. Having a steady job will help your case or moving up to a higher paying position may help you secure a lower rate on your mortgage.
Your Debt to Income Ratio
There are two debt-to-income ratio forms. The first will assess all of your monthly minimum debt payments into a lump sum and then add your new housing payment proposal to the mix. It will then take that figure and then divide it by your stable monthly income before taxes. There is also a front-end ratio form that looks at your housing expenditures, meaning it ignores your other debts.
Interestingly, most banks in this country have historically looked for a back-end ratio that does not breach the 36% mark and a front-end ratio that does not exceed the 28% mark.
The Down Payment Amount
Generally speaking, most lenders will require that you put down at least 20% on your new home, in the form of a down-payment, to qualify for the best rates. If you are unable to put down at least 20%, you will be asked to pay private mortgage insurance to offset some of the risks for the lender.
Your Cash Reserves
Your cash reserves will be measured in terms of the number of months worth of payments you have saved in the form of capital. The cash reserve will include the cash that you have saved in your savings accounts as well as your checking accounts, as well as certificates of deposit and money market funds. The common prerequisite for cash reserves, in the mortgage world, is two months on a mortgage in Canada.
For more tips on how to get the lowest mortgage rates in Canada, call Northwood Mortgages at 866-307-0747 or contact us here.