In this November market update, we’ll dive into the current rate trends, provide valuable advice, and help you navigate the path to securing the best mortgage rate for your needs.

Current Mortgage Rate Trends

Fixed Mortgage Rates

In recent weeks, one-, three-, and five-year fixed mortgage rates have been relatively stable. However, it’s crucial to note that they have levelled out at rates that, in some cases, haven’t been this high since 2008. For example, the average posted rate for a one-year fixed-rate mortgage, according to the Bank of Canada, was a staggering 8.09% as of October 18. Three-year fixed mortgage rates, at an average of 7.14%, appear more attractive, but they require borrowers to pass the stress test at a challenging 9.14%.

While five-year fixed mortgage rates remain the more affordable option, it presents a dilemma for mortgage shoppers. If rates are expected to decline in the next year or two, a five-year term might not seem very attractive. However, shorter-term options may be too expensive for many borrowers to qualify for. The good news is that your bank’s posted rates can often be negotiated down, and they should be closer to the rates found on mortgage rate comparison tables. As of October 18, some lenders were still offering five-year fixed rates below 6%.

Variable Mortgage Rates

Variable mortgage rates have been on the rise, with numerous increases since March 2022, amounting to 475 basis points. Although the Bank of Canada held its overnight rate at 5% on October 25, variable mortgage rates remain unattractive. With inflation ticking down and employment growth slowing, the bank’s series of rate hikes may finally be showing results. However, don’t expect a reduction in the overnight rate or variable mortgage rates until well into 2024.

Advice for Mortgage Shoppers

Fixed Mortgage Rates

Given the current trend in fixed mortgage rates, it’s unlikely that we will see a significant decline in the last part of the year. Three- and five-year government bond yields, which influence fixed mortgage rates, are currently higher than they’ve been since 2007. As long as these yields remain elevated, fixed mortgage rates are likely to stay on the high side. Therefore, if you’re considering a fixed-rate mortgage, it’s wise to secure one sooner rather than later, as rates may continue to rise.

Variable Mortgage Rates

For those contemplating variable-rate mortgages, it’s essential to monitor the Bank of Canada’s decisions closely. The bank will only consider reducing the overnight rate once they are confident that inflation is moving toward their target rate of 2%. With inflation at 3.8% in September, nearly double the bank’s target, it’s unlikely we will see a reduction in variable mortgage rates soon.

Broker vs. Bank: Who Offers the Best Mortgage Rates?

Choosing the right avenue to secure a mortgage can have a significant impact on the rate you receive. When deciding between working with a lender (such as a bank) or a mortgage broker, consider the following:

Mortgage Brokers: These professionals can provide a wider array of options because they aren’t tied to a single financial institution. Brokers can obtain offers from multiple lender partners, including B lenders and private lenders, in addition to major banks. They also have a strong incentive to negotiate the best possible rate for you since they only earn a commission when a mortgage is finalized.

Banks: Bank employees have revenue targets to meet, which may not align with your best interests. While banks can offer competitive rates, their offerings are limited to their products, potentially missing out on more favourable options available through brokers.

Staying informed about the current mortgage rate trends and making a well-informed choice between fixed and variable rates is vital. Additionally, leveraging the expertise of a mortgage broker could be advantageous in securing the most favourable mortgage rate tailored to your financial situation and homeownership goals. Remember that while rates have been on the rise, it’s still possible to find a competitive mortgage rate that suits your needs. If you are struggling with mortgage payments due to higher rates, do not hesitate to reach out to your lender or mortgage broker for assistance and payment flexibility options. The mortgage market can be complex, but with the right information and guidance, you can make the best financial decisions for your future.

How to Get the Best Mortgage Rate

Boost Your Credit Score

A credit score of 680 or higher will help you get approved for a mortgage at most Canadian lenders. The longer the list of lenders willing to work with you, the more mortgage offers you’ll have to choose from. The increased choice gives you a little more control over what your loan will cost and a better shot at being offered the best mortgage rate.

Before applying for a mortgage or mortgage pre-approval, check your credit score and see where it stands. If there are some financial habits you can tweak to improve your credit score, get tweaking. And if you’re stuck for ideas, reach out to your bank’s financial advisor, a mortgage broker, or a credit counsellor to get some ideas from a professional.

If your credit score is below 680, you should still be able to apply for a mortgage with a B lender, but a B lender mortgage might come with significantly higher interest rates.

Pay Down Debt

Paying down your credit balances can also help reduce the mortgage rate you’re offered.

If you’re carrying significant debt from a credit card, personal loan, or line of credit, lenders may have legitimate concerns about your financial decision-making or your ability to pay for a mortgage. Any risk they see in your debt service ratios or credit history could give them a reason to offer you a higher rate.

Choose Between a Fixed-Rate and Adjustable-Rate Mortgage (ARM)

You’ll have to make several decisions when it comes to choosing among the types of mortgages available when you are planning to buy a house. From a financial perspective, one of the single most important choices you’ll make is between a fixed-rate mortgage and a variable-rate mortgage.

Fixed-rate mortgages

With a fixed-rate mortgage, the amount of your payment will stay the same over the loan term. That means your lender is making a very large loan to you whose terms can’t be changed for the next 15 – 30 years. Even if interest rates skyrocket, your fixed-term loan payments won’t change.

Because lenders are taking all of the risk that interest rates will rise when they make a fixed-rate mortgage loan, they charge more upfront. There’s a big difference between 15- and 30-year fixed rates as well, which reflects that lenders are assuming that risk for twice as long.

Variable-Rate Mortgages

Variable-rate mortgages work a bit differently. They typically start with a lower rate. This initial rate remains fixed for the first several years of the loan, typically a period of 5, 7, or 10 years. After that, the rate will periodically adjust up or down according to the market.

Because you can end up paying much more in interest rates, you are sharing with your lender the risk that interest rates will go up. That’s why they can afford to offer the introductory rate to entice new home buyers.

Negotiate

Whether you’re dealing with a big bank or a small alternative lender, don’t accept the first-rate offer you’re presented with.

Negotiating is a must during the mortgage process. Even if your lender isn’t willing to decimate its rate offer for you, getting a little shaved off your rate can make a significant difference.

Understanding mortgage rates and making informed decisions about the type of mortgage you choose can have a significant impact on your financial future. While the current mortgage market is witnessing rising rates, there are still opportunities to secure competitive rates by improving your credit score, paying down debt, and negotiating with lenders. Whether you opt for a fixed-rate or adjustable-rate mortgage, the key is to stay well-informed and make choices that align with your financial goals.

Are you on the hunt for the perfect mortgage to finance your dream home? Look no further! As your trusted mortgage broker, we’re here to guide you through the current market trends and help you secure the best possible rate tailored to your unique needs.

Your journey to homeownership is an exciting one, but it’s essential to understand the pivotal role your credit score plays in the mortgage application process. A credit score acts as a mirror, reflecting your financial history and trustworthiness as a borrower. This article will dive into how credit scores influence mortgage applications, debt ratios, and the quest for better loan terms. Plus, we’ll explore options for individuals with less-than-ideal credit scores and provide tips on repairing your credit.

Credit Scores and Mortgage Approval

Your credit score is a numerical representation of your creditworthiness. Lenders use it to gauge the risk associated with lending to you. A high credit score is a badge of financial responsibility, signaling to lenders that you are likely to repay your mortgage on time. Conversely, a low score or no credit history may cast doubt on your ability to meet your mortgage obligations.

In the past, credit scores played a critical role in determining your maximum allowable debt ratios during mortgage underwriting. The Canadian Mortgage and Housing Corporation (CMHC) imposed specific thresholds based on credit scores. For example, those with scores under 680 faced more restrictive Gross Debt Service Ratio (GDSR) and Total Debt Service Ratio (TDSR) limits. This changed recently as the CMHC increased these limits for all borrowers, regardless of credit scores. This adjustment offers more flexibility for prospective homeowners.

Better Credit Means Better Loan Terms

However, a strong credit score opens doors to better loan terms. Lenders are more likely to reward borrowers with excellent credit scores (above 720) by offering lower interest rates. As a result, your monthly mortgage payments become more manageable, and you save money over the life of the loan. It’s essential to recognize that different types of mortgages may have varying credit score requirements, so shopping around is crucial.

Can You Get a Mortgage with Bad Credit? 

While major banks tend to be strict with their mortgage approval criteria, individuals with lower credit scores have alternative options. Credit unions, trust companies, subprime lenders, and private lenders are more willing to assist those considered risky borrowers. However, it’s important to note that these lenders often charge significantly higher interest rates, which can increase the overall cost of your mortgage. If you find yourself in this situation, consider strategies like saving for a larger down payment, applying for a joint mortgage, or adding a co-signer.

What Credit Score Do You Need? 

The minimum desired credit score for mortgage approval typically falls in the range of 650-720. Borrowers within this range have access to various mortgage rates. However, as of July 5, 2021, the CMHC reduced the minimum credit score requirement to 600, offering more opportunities for those new to credit or Canada. Nevertheless, rates may increase incrementally for borrowers in this range, especially if credit unions view them as “fringe borrowers.”

How to repair your credit

If your credit score needs improvement, it’s essential to take proactive steps. Start by reviewing your credit report for errors and addressing any discrepancies. Develop a budget to manage your debt responsibly, make timely payments, and avoid accruing more debt. Over time, these efforts can help raise your credit score, making you a more attractive candidate for a mortgage with better terms.

Your credit score is a key player in the mortgage application game. Understanding its significance, managing your debt responsibly, and exploring various lenders can greatly influence your ability to secure a mortgage with favourable terms. If your credit score needs work, don’t despair; with dedication and financial discipline, you can improve it over time, putting you on the path to homeownership.

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Source:

equifax.com

https://www.transunion.ca/