You’re in the market for a mortgage and you want to find the best rate. Your neighbours have been bragging about their low rate and you want the same. Since everyone’s situation is different, however, and there’s no one-size-fits-all option, it’s best to avoid making comparisons.
Knowing what factors determine your mortgage rate can help you better understand the process. The rate you’re offered is based on a number of considerations that are unique to you, and you alone. These include:
- loan amount
- credit score
- income stability
- down payment
- debt-to-income ratio
- interest type (ie, fixed vs variable)
Mortgage rates are influenced by such things as economic activity, supply and demand, and inflation. It’s possible that your neighbours obtained their mortgage during a period of slow economic growth (causing mortgage rates to be lower), or perhaps their down payment was larger or their credit score higher.
To ensure you qualify for the best possible rate, you’ll want to make yourself attractive to lenders. Make sure your credit score is healthy, save as much as possible for a down payment, reduce your existing debt and consider a variable-rate option.
And, although rate is important, your final mortgage decision shouldn’t be based on rate alone as there are many other, equally important, factors you need to consider. While lower rates generally signify lower payments, they can also represent less flexibility and you should pay special attention to prepayment privileges, penalties, portability and refinancing restrictions.
When you make any type of purchase, you likely shop around. You consider cost, but you also look into overall features in order to select the best product based on your needs. You may actually end up with something that’s a bit more expensive but, if it provides you with everything you’re looking for, it’ll actually save you in the long run. Your mortgage is no different – it’s a complicated financial transaction, and you need to consider all of its features in order to make a sound decision you’ll be comfortable with, both now and in the future.
Rates also vary by lender so it’s critical to work with a professional mortgage agent who’ll negotiate with different types of lenders (eg banks, trust companies and credit unions) to ensure you obtain the best possible mortgage product and competitive rate catered to your unique requirements. With so many options, professional advice is invaluable.
Have questions about interest rates or your mortgage in general? Answers are a call or email away!