How the banks determine your Mortgage Rate
5 C’s of Credit
The 5 C’s are used by most lenders to evaluate a customer, and in turn, determine how much money or credit to extend. These factors are used to manage risk for a lending institution. Don’t worry Calgary because if you are not strong in all of these categories it does not mean you can not get a mortgage. I have presented the 5 C’s of credit because we should all be constantly seeking to look better to the lending institutions; it could save you thousands in interest payments.
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Calgary High Risk Mortgages
High risk mortgages
The amount of people living in Calgary who look for high risk home mortgage is increasing. You have most likely seen advertising for “bad credit no problem” or “bad credit, 100% financing available”. High risk home mortgage lenders specialize in offering loans to people with adverse credit, due to bankruptcy or other financial problems. Is this a sales gimmick? Yes and no. For sure there are lots of mortgage options, but there is always a price. The worse your credit is the higher the interest rate.
Variable or Fixed Rate Mortgage
Which one is good for me?
So how do you decide? Fixed-rate mortgages, because they require a low risk tolerance, are usually better suited to first-time buyers or those who haven’t owned a home for a very long period. Typically, the lowest available rate and the one that makes the rate sign look great from the street will be for a variable or adjustable-rate mortgage. A variable or adjustable-rate mortgage follows Canada’s bank prime lending rate. It is how the government of Canada can control inflation by lowering and raising rates.
Is a variable rate good for me?
A variable or adjustable-rate mortgage is best suited to people who have a flexible budget and can tolerate higher risk. Ask yourself these questions:
• Do you watch market conditions?
• Can you handle any sudden rate increases that could increase your payment?
• Do you have 20% or more equity in your home?
If you answered “yes” to all, or most of these questions, a variable or adjustable-rate mortgage might best suit your needs.
If you are ask yourself these questions:
• Do you like or need to know exactly what your payment is going to be over a longer period of time?
• Do you want to avoid the need to consistently watch rates?
• Do you have less than 20% down?
If you answered “yes” to all, or most of these questions, a more conservative fixed-rate mortgage could be the better choice for you.
If the uncertainty of a floating rate is going to give you sleepless nights, you’re in good company. Many Calgarians prefer the certainty of a fixed-rate mortgage. They know exactly how much they will pay over the term of their mortgage, and they can plan accordingly. But if rates do drop… and drop… you are committed to the “promise” that you have made. Variable rates are more popular for Calgary Real-estate investors who know what they are doing to save them money. As well historically those who go with the variable rate save hundreds or even thousands of dollars over the life of their term. Like I said there are many different choices, and as always your best option is to have a professional help you decide which option better meets your specific needs.
