How to Find the Best Mortgage Deal in Canada?
Buying your first home can be scary and exciting at the same time. You are soon going to break free from the shackles of renting and start making regular mortgage payments on a piece of land/property you actually own. And to help you find the best mortgage deal for your future home, we’ve created a quick guide with everything you need to know about mortgages in Canada. You can also check out Breezeful for the best mortgage advice in the market.
Understanding the Different Mortgages
In Canada, mortgages are categorized into three categories: insured, conventional, and uninsured. Each of these mortgages comes with a different rate and set of benefits, which is why it’s important to know the difference between the three before applying.
An insured mortgage requires you to pay mortgage default insurance to protect the entity lending you money. Since lenders are insured, these mortgages tend to have lower interest rates, though you have to keep in mind that you’ll be paying insurance along with the monthly mortgage payments.
A conventional mortgage is one that requires at least a 20% downpayment. When you do this, you aren’t required to pay for mortgage insurance, which can save you some money down the line. But since lenders aren’t insured with these mortgages, the interest rates tend to be higher.
Lastly, uninsured mortgages are the riskiest for lenders. These loans don’t meet the government standards to be insured and are usually reserved for homes above $30 million or 30-year mortgage terms. As this type of mortgage is the riskiest option for lenders, they tend to come with the highest interest rates.
Tips for Getting the Best Mortgage Deal
When applying for a mortgage, lenders will look at a bunch of your personal details to determine whether you can qualify for a mortgage. If the lender believes that you’re a lower-risk borrower, you’ll be able to secure a mortgage with better interest rates.
Save For A Downpayment
One of the best ways to secure a better mortgage deal is by saving for a larger downpayment. The main reason we recommend saving for a larger downpayment is because it allows you to borrow less money from the get-go.
And when you borrow less money, you pay less interest, which saves you a lot of money in the long run. Required down payments in Canada vary depending on the price of the home, but for houses below $500,000, you need to pay at least a 5% downpayment.
To secure the best interest rate, however, a 20% downpayment is recommended.
Improve Your Credit Score
Your credit score is very important for lenders when determining whether or not you qualify for a mortgage loan. Credit scores in Canada range from 300-900 with the lowest category being poor and the highest one being excellent.
The better your credit score, the less risky of a borrower you’re seen as in the lender’s eyes. You can improve your credit score by paying your debts, paying bills on time, and not applying for new credit cards while trying to secure a mortgage.
Stabilize Your Income
A stable income is a great indicator for lenders that you can afford to pay the monthly payment for the mortgage. If you’re employed through a company on a fixed monthly or weekly salary, you won’t typically face any issues.
However, if you’re self-employed, you may need to have a little more proof that you can afford to pay the monthly mortgage payments in the long run. Typically, lenders may ask you for your income dating back a few years to qualify you for a mortgage loan.
Conclusion
Borrowing money for your new home through the means of a mortgage loan is a great way to start your journey on the property ladder. Generally speaking, if you are in full-time employment, most lenders will consider your circumstances and qualify you for a mortgage.
Before you do go ahead and apply for a mortgage, make sure that your credit score is up to standard, you have a stable income and a downpayment between five and twenty percent.
Information obtained from rew.ca and Breezeful.