Read below to learn about the world of Mortgage, Refinancing, Interest Rates, Credit Score, and more.
Banks are always the most inexpensive option for all borrowers. However, banks have more stringent requirement for approval. If you are self-employed or buying a second home and investment property you might find it difficult to deal with the banks. In those circumstances alternative and private lenders can be viable option.
Prime rate is the average borrowing rate by all major banks. The banks typically offer discounts to prime rates depending on terms, maturity and borrower circumstances.
Variable rates typically vary based on prime and bank of Canada interest rate. The Fixed rates typically fluctuate based on bond market spreads and are generally higher than the variable rate. Variable mortgages have a lower penalty than fixed rates. So if the borrower is planning on selling the home in short period of time, and therefore are not exposed to prolonged interest rate risk and want to avoid a large penalty on sale, variable rate is a more suitable option. If the expectation of the borrower is that in the future the rates will increase, and they intend to keep the property for a longer period of time then they are likely better off with a fixed rate.
Most borrowers focus on the rate when looking at getting a mortgage. Rates are of course very important but there are other consideration that can increase the cost of the mortgage. Penalty clauses and pre-payment terms are also a crucial part of the mortgage contract. If the term of the mortgage is ‘open’ you could pay it off any time without a penalty. If the mortgage terms are “closed” they often allow for certain amount of the balance (15-20% usually), to be paid prior to the end of the term. Not paying attention o penalty terms can cost many thousands of dollars.
Depending on the terms of the mortgage, there maybe a penalty involved. If the term is open there is no penalty. If the term is closed there could be various forms of penalty and it can become a significant amount. That is why it is important to chose the right term when selecting the mortgage. You can contact WiiBid advisors to learn more and get advice when needed.
WiiBid is the only platform that enables investors to source and originate opportunities for lending. For more information register as a lender and one of our advisors will contact you for a consultation.
Refinance and Interest Rates
If you find the market interest rates that are advertised by banks are less than the rate you are paying there might be a way to save money on your mortgage. You should carefully consider the costs of switching and the savings you might see by refinancing over the term of the mortgage.
If you feel like the interest rates are going to be increased soon, you should try to lock in the rate. In practice it is difficult to try and predict the direction of interest rate as there are many factors contributing to interest rate directions.
Credit score and history are very important for the lenders to assess the strength of an application and without a credit score, most lenders will not entertain financing.
Generally speaking, a minimum credit score of 680 is required for most banks, credit union and prime lenders. A score above 700 is generally considered a “good’ credit. However, Alternative lenders are more flexible when it comes to credit score. Private lenders typically are less concerned with the score itself than the liabilities a person carries that reflects in the credit file.
Home Buying Process
The amount of borrowing depends on the most part on two main factors:
- LTV (Loan To Value): ratio of loan to property value: this can be as high as 95% for high ratio mortgages and as low as 50% depending on the property type,
- Income: Typically the banks would like to see more than 40% of the gross income being paid towards servicing (paying) monthly debt. So this creates a limit on the overall loan amount.
Despite the common notion that a 5% down payment is sufficient to purchase property, it is generally recommended that at minimum 20% should be saved. This is because with 5% equity, fluctuation in the property market prices may easily wipe out the down payment. As well financing with only 5% down payment although is possible in theory through CMHC , it is very difficult to qualify for and request between 2-4% of additional insurance costs.
Legal costs should also be considered as the lawyers will have to be paid to create the necessary documentation. In the case of private mortgages, borrowers have to pay for both the lenders and their own lawyers.
Commitment typically contain conditions that need to be satisfied prior to closing, they may include getting a an appraisal or receiving certain documents. Delay in providing documents to the lenders may delay closing time and risk the deal from falling apart so borrowers need to be diligent in providing documents quickly and completely.
Obtaining a WiiBid Mortgage
Typically the process starts by filing an application through the WiiBid platform. This application is designed to be very easy and can be completed in under 10 minutes.
WiiBid is the only application which provides the application to many lenders at the same time without disclosing your name. The lenders will provide their offers and the borrowers select the best one.
Bank and credit unions make their money by charging you a higher interest rate that they can borrow from the central bank.
Alternative lenders typically have a lender fee of between 0.5%-1.25% which is cost to the borrower. Private lender may charge anywhere from 1-3% depending on the case.
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