The world of interest rates used to be quite simple a few years ago. Banks had one set of rates and those rates were used for all types of purchases and refinances or renewals. Rates were often the same if you qualified with your income or if we were using a stated income program.
In the last few years though, and with mortgage rules changing constantly, how a lender determines your interest rate has become very complicated. We will break it down here in simple terms to give you a better understanding. First of all the lender will break down the interest rate based on whether or not it is a purchase or a refinance.
Purchases:
If you are purchasing a property then here is the criteria they will use in determining your interest rate.
• If you are putting less than 20% down then you will be obtaining an insured mortgage. You will be paying an insurance fee and getting a mortgage amortized over 25 years. The bank will offer you their LOWEST interest rate for this type of mortgage even though your down payment is smaller.
• If you are putting 20% down or more then there are several ways to determine your interest rate.
a) A mortgage with 20% down and a 30 year amortization will be given the highest rate for a purchase.
b) A mortgage with 20% down and a 25 year amortization will be given a slightly better rate for a purchase.
c) In addition if you put 25%, 30% or 35% down and the mortgage is insurable (amortized over 25 years, less than $1 million in price, meets insurer guidelines) you will get better rates than above (a of b) and you may get a rate as low as the insured rates.
Refinances & Renewals:
If you are refinancing or renewing your mortgage then here is the criteria they will use in determining your interest rate.
• If you are renewing your mortgage with no increase to it and the mortgage is insurable (amortized over 25 years, less than $1 million in price, meets insurer guidelines) you will get the LOWEST interest rates available.
• If you are renewing your mortgage with no increase to it and the mortgage is not-insurable (as noted above) you will pay a slightly higher interest rate.
• If you are refinancing your mortgage (increasing it) then you will pay the highest interest rate available (higher than a straight renewal or purchase). Rates for this may be differentiated with 25 year rates being lower and 30 year rates being slightly higher.
If you need more information regarding mortgages or if you need any advice on your personal situation please contact our office at 604-556-3893 or email at alex.kotai@ymscanada.ca.
For more information on our mortgage products and your preferred Abbotsford Mortgage Broker please visit our website at www.ymscanada.ca.