Four Things That Would Get You A Loan
Mortgage lenders are quite particular about the above-mentioned four things. It's indispensable to have a stable monthly income. The first thing that a lender will look at is this. Whether you own a business or work in an office, you are required to fulfill certain pre-requisites like Notice of Assessment Forms from the Canada Revenue Agency. This Notice of Assessment certifies that you have a regular income and that you pay your taxes on time.
Employed people need to produce a certificate of employment, along with pay slips of the previous two months. The lender has a right to verify your employment status at your company. Before approving mortgage loan, lenders assess financial capability to make monthly payments. Again, the lenders consider the number of members in your family, the amount of time you have been in the same job, your pending monthly bills, and other due payments. All this gives them an idea of your financial condition and how suitable a candidate you are for the loan.
The Loan Formula
Through this formula, lenders fix the loan amount to be granted to you. They consider your GDS (Gross Debt Service) ratio, plus your TDS (Total Debt Service) ratio for this.
GDS indicates the highest percentage of gross income given as payment for house maintenance costs. The principal as well as interest mortgage payment, apartment fees, heating cost, and property taxes come under this ratio. Your monthly expenses should be below 32 percent of your total monthly earnings in order to qualify for best mortgage loan.
TDS indicates the highest percentage of gross income utilized in payment GDS, plus other financial debts. Your credit cards bills, other loans, and everything coming under GDS fall in this ratio. Your TDS should be below 40 percent of your total gross monthly revenue in order to qualify for loan.
Now comes the credit score; something that most Canadians fear unveiling. Well, you need not have an excellent score to get a loan approval; but it should not be a poor figure either. In case you haven't checked your credit score, you can contact the three major credit bureaus - Equifax, Transunion, and Experian - and ask for a copy of your credit report. You must always check your credit report for any errors that may mar your credit rating. In case you find any error, you must report at once to the bureau for correction (which they have to do within 30 days of reporting). You must do this before you contact your lender for Canada mortgage rate. This is because the more pleasant credit score you present to your lender, the better your chances of getting competitive rates.
Next is your real estate property. The lenders are interested in the appearance and physical traits of your property that is to be mortgaged. Most of the time lenders carry out a home inspection to know the quality of home. Why do they take such a pain? Well, you must understand that your real estate property is the only security the lender has. Hence, it's but natural for them to be overly cautious of the condition of your property. They make sure that your property has a good re-sale value, in case you default on loan. To determine this, they undergo a property appraisal before approving the loan.
Talking of down payment, this has ceased to be an indispensable criterion, as there are various mortgage programs that are designed to cover 100 percent financing. But, if you have the capacity to pay 20 percent or above of the purchasing price, the lender would skip default insurance.
Thus, with a good Canada mortgage calculator and a reliable lender, you can manage to get the best deal in mortgage. However, a little homework from your side is advisable. This is because not all lenders are as good as they seem to be.
5 Ways A Lender Can Trick You
• Huge mortgage with a measly monthly payment - if you get $500,000 mortgage for a term of 30 years that requires you to pay just $1200 as monthly payment; it is a negative amortization mortgage. It is good news for the lenders, but devastating for the borrowers. You pay half percent interest rate for 3-5 years and then it converts to a loan with regular mortgage interest rates. Your principal keeps on increasing because the remaining interest that you do not pay during this negative amortization period is added to it. So, after 3 or 5 years, your principal amount increases and so does your monthly payment for the rest of the years. Not a good idea, at all.
• Refinance with HELOC - many times, when you wish to refinance your home to pay off your debts, the lender may lend you just enough amount for doing this. Then, he or she would convince you into taking a HELOC mortgage (Home Equity Line of Credit). The problem is that this is a mortgage with an adjustable rate. It can shock you any time with a high mortgage refinance rate change.
• Biweekly payment plan - you may be fooled into believing that you're paying off your mortgage faster with no additional monthly payments. Say, you pay $2000 every month. With a biweekly plan, with the same borrowed amount, same term, and same interest rate, you are required to pay $1000 every two weeks. Of course, you'd pay off your mortgage faster, sometimes as fast as 7 years earlier! But, alas, you accomplish this by paying more towards your principal amount annually! And if you really are paying more, you can do this on a regular mortgage plan and pay off your loan sooner. Why go for a biweekly plan at all? Besides, companies charge heavily for mortgage transfer Canada.
• A very long term mortgage - suppose you borrow a certain amount at a particular interest for 30 years. You have a fixed monthly payment to make. After 25 years, you'd still owe some amount on mortgage. Now suppose you borrow the same amount at same interest for 40 years. But, your monthly payment is lower and you like this factor of the long term loan; hence, you go for it. After 25 years, you'd still have a substantial amount left on mortgage. Once you pay the loan fully, you'd realize that you've paid more amount than that in 30-year loan. This means that the lender is at profit on the 40-year loan, as he or she gets to earn extra bucks on each of his or her mortgages. Most borrowers fall for the exceptionally low monthly payments in this very long-term loan. But, they realize only later that they were paying a lot of money as interest.
• Interest only payment plan - beware of this! If you pay only the interest, you'd never be able to pay off your loan! These kinds of payments are what you usually make in the initial years of HELOC. Under this plan, the payment remains constant no matter how many years. But, the more shocking thing is that at the term end, the amount of money that you still need to pay is the same as the amount you borrowed!
Now you realize how important it is to do your homework before going for any kind of loan, whether mortgage, refinance, or debt consolidation loan. A wrong choice can push you into a financial mess, and even foreclosure. So, you need to keep all your senses, including your gut feeling, on alert while shopping for debt consolidation Canada or mortgage Canada.
Mortgage Trends And Rates 2009
The Bank of Canada had vowed to keep its benchmark interest rate constant at 0.25 percent for the whole of 2009. However, rates really depend on inflation, and it is the rise of rates that would keep inflation below 2 percent, which is the present target of the government. Although it has been said that the rate of mortgage Canada is plummeting, it shall be probably higher than its current historic lows. There is no hard and fast rule for interest rates. Besides, it's tough to tell right now where exactly the interest rates will be in 2010.
As a borrower, you must present yourself as a well-informed, smart customer who knows what he or she wants and what is prevalent. Once you get a trustworthy lender, Mortgage Canada becomes a piece of cake.