5 Tips to Lower Your Mortgage Rate

Buying a new home is exciting, but sorting out a low mortgage rate in Toronto can be stressful. A mortgage gets locked in for a set amount of time, so finding the best rate early is important.

At Northwood Mortgage, we work with home buyers across Ontario, offering outside-of-the-box financial solutions. Here are five tips from our experts on how to get a low mortgage rate in Toronto.

1. Consider your income-to-debt balance

One of the things that mortgage brokers and lenders consider in Canada is income-to-debt ratios. This ratio tells lenders how much you earn compared to how much you already owe.

When determining a loan amount, like that of a mortgage, the less balance your debt ratio, the less likely it is for a low rate or even approval.

In Canada, it’s best to keep your debt ratio between 39% and 44%. Otherwise, lenders may flag you as a risk. High-risk borrowers pay higher mortgage interest rates.

2. Bulk up your savings accounts

The amount you put forward on a down payment drastically improves the odds of a low mortgage rate in Toronto.

Lenders are looking at how much is left to pay and how reliable you’ll be to pay it. A big down payment shows commitment and follow-through. It also minimizes the principal owed.

Building your savings is the best way to prepare for a down payment. The most beneficial amount for a down payment in Canada is 20% of the home value. For first-time home buyers, 5% is an acceptable down payment. Still, it might not be enough to lower your mortgage rate, so be ready to add to the pot.

3. Document your work history

Lenders want to know that you have consistent money coming into the bank. A long work history proves your diligence for earning and lowers the risk of missed payments.

Lenders are always looking for ways to reduce the risk of losing their investment. The money they lend isn’t from the goodness of their hearts but for a profit based on interest returned.

A long work history looks safe. Make a list of all your employers, years worked, and salary earned for a better chance at a low mortgage rate in Toronto.

4. Work on your credit score

A credit score indicates your income-to-debt ratio, ability to make timely payments, and potential for falling into arrears or, worse, collections. In Canada, a good credit score falls between 660 and 724. A poor credit score is 574 or less.

Banks and other lenders are less likely to consider you as a good candidate for a mortgage with a low credit rating. The better your credit score, the more likely you will obtain a low mortgage rate in Toronto.