Home sweet home: buying can be trying
Your new home purchase is a milestone in your journey toward security, stability and independence. TransUnion can help you avoid unwanted setbacks as you move to close the deal.
How does my credit score affect my mortgage rate and eligibility?
Your credit score can directly affect the mortgage interest rate a lender offers. Basically, higher credit scores can lower the interest rate, while lower scores may cause them to rise.
If I already have a high credit score, what else can I do to lower my mortgage rates?
Choose a shorter amortization period if you can handle a higher monthly payment. For example, a 15-year term instead of a 25-year loan will not only reduce your interest rate, it will cut the total interest you pay over the term of the mortgage. Short-term and variable rate mortgages are less risky for lenders, so they offer lower interest rates. But remember, short term and variable interest rate mortgages are risky for you if interest rates rise. That’s why many people want the security of a “locked-in" longer term interest rate.
Can I get a mortgage with a low credit score?
Typically, if your credit score is less than 600 or even 650 in some circumstances, getting approved for a mortgage that you can afford, may be a challenge. Each lender has its own formula for determining the level of risk they will assume when evaluating your mortgage application, so it is difficult to provide a one size fits all answer. There are also companies that specialize in mortgages for purchasers with weak credit histories, who may charge a higher interest rate or insist on a higher down payment. As each purchaser’s situation is different, you should speak with a range of potential lenders and choose the one that best meets your needs.
What other mortgage-related costs do I need to consider?
Down Payment Rules
In Canada, federal mortgage rules that came into effect on February 15, 2016, require larger down payments for higher priced properties. For houses under $500,000, the minimum down payment is 5%. For higher priced homes, the minimum down payment is 5% for the first $500,000 and 10% for the remaining portion.
Mortgage loan insurance (MLI)
In Canada, lenders require mortgage loan insurance when your down payment is less than 20% of the purchase price. There are a few companies that offer mortgage loan insurance. Your potential lender will provide the information you need. Mortgage loan insurance protects lenders against mortgage default, and enables you to purchase homes with a minimum down payment starting at 5% — with interest rates comparable to those with a 20% down payment.
Your mortgage loan insurance premium is a percentage of the mortgage amount and is influenced by a number of factors such as whether you will occupy or rent the property, whether the loan is to purchase the property, for construction on the property, if you are refinancing, and the size of your down payment. The more you borrow, the higher the premium – but usually the cost is offset by the amount you save in the interest rate on your mortgage.
Other Closing Costs
Once you’ve settled on a down payment, it’s important to take stock of your closing costs. These can vary by city and province, and can include land transfer taxes, a realtor’s commission, HST and lawyer’s fees.