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Like any other major financial decision, homebuyers are often looking for ways to make the most cost-efficient deal; when it comes to owning a home, that often boils down to getting the lowest mortgage rate possible. While having an excellent credit score is ideal for setting the tone for that low mortgage rate, it’s really one of two things that can dictate what the final mortgage payments will be: the mortgage down payment the buyer makes or the mortgage rate points the buyer purchases.
Most homebuyers know that a down payment is expected with any home purchase. Therefore, let’s start with a look at how making varying down payments can affect a mortgage rate. Say a nice young couple, the Smiths is what we’ll call them, wants to buy a $150,000 home. They’re currently being offered a 30-year fixed mortgage with a 6.5% fixed mortgage rate and are fortunate to have some leeway in the cash they can access for a down payment. They are trying to determine how much benefit they’ll gain by making down payments. Here’s what they found:
There are wonderfully tempting mortgage rates advertised daily on TV, over the Internet, in the newspaper and through the radio. But guess what? What you see and / or hear will not necessarily be what you get. Why not? Well, as with most things in life, mortgage rate offers always come with a catch. The catch in the case of mortgage rates: your credit rating.
Generally, when mortgage rates are quoted, the mortgage rates are based on the potential lendee (ie. you) having what is deemed as excellent credit. In today’s economy, the low end of that spectrum is a 700 credit score with the preferable rating being 720+. I know what you’re thinking: That’s a steep qualification in order to obtain the advertised mortgage rate. And you know what? You’re right.
There is, of course, a segment of the Canadian population who will have no problem qualifying for advertised mortgage rates because they do have that coveted 700+ credit score.
When you sit down with a mortgage loan officer to talk about mortgage loan rates, be ready to ask questions. Ask anything that comes to mind but before you leave, ask about mortgage rate points. If you don’t, it could cost you significantly in the long run.
The two main types of points to discuss with a mortgage loan officer are origination mortgage points and discount mortgage rate points. Here’s how they differ: An origination mortgage point is a fee that some mortgage firms apply to any loan that they help broker. Meanwhile, discount mortgage points allow you to decrease the overall interest you’ll pay on a loan obtained through a mortgage firm; with discount points, you are actually paying to decrease the interest rate of the loan you qualify for.
It’s a buyer’s real estate market in Ontario right now, especially in Toronto! So, if you’ve been planning to buy a home, put your plan into action. To do that, all you’ll really need to do is to make an appointment with a Toronto mortgage consultant. However, it’s a good idea to have a basic understanding of how Toronto mortgages work first. So, here’s a quick overview of what you should know before setting up a meeting…
Types of Residential Toronto Mortgages Fixed Rate Mortgage v.s. Variable Rate Mortgage
Just like the name suggests, fixed rate loans provide a set interest rate for the life of the mortgage loan. Therefore, you’ll always know how much your mortgage payment will be. Meanwhile variable interest rate loans often have enticing low initial interest rates that will adjust (higher or lower) every few months based on your Toronto mortgage loan lender’s rates or Canada’s prime bank rate. Both types of loans are typically available through most, if not all, Toronto mortgage firms; some companies may also provide loan options that are a combination of the two.
Open Mortgage vs. Closed Mortgage
The primary difference between a closed mortgage and an open mortgage loan is whether the loan can be paid off in advance of the original loan term without penalty. Open mortgage loans can be paid off at anytime within the loan period; closed mortgages cannot. Additionally, open mortgages can be renewed or refinanced at any time. However, that option is not available on closed mortgages either. As a result, open mortgages provide more freedom. Therefore, most Toronto mortgage companies focus on providing open mortgage loan options.
Let’s clear the air: Adjustable rate mortgages are not bad. Yes, they’ve gotten a “bad rap” over the last year because people tend to associate adjustable rate mortgages with recent housing woes plaguing the nation but the loans are not the cause of the nation’s real estate crisis; misunderstanding and misusing them is. The reality is that adjustable rate mortgages can, in fact, be an excellent mortgage loan option IF you fully understand how they work. So, with that said, it’s time to learn.
Who is eligible for an adjustable rate mortgage? As with any mortgage loan, anyone can apply. However, adjustable rate mortgages do tend to be more appealing to those who deal with budgeting changes well and those who don’t plan on living in a specific house for more than three to five years. Why? Keep reading…
What exactly is an adjustable rate mortgage? An adjustable rate mortgage is one of the two most popular mortgage loan types offered. As the name suggests, the mortgage loans are called adjustable because the rate of the mortgage loan changes periodically—most commonly every six months. Mortgage loan firms often abbreviate “adjustable rate mortgage” with “ARM.”
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