What Mortgage Rate to Expect!

There are many extremly tempting mortgage rates advertised daily on Television, in the newspaper, on the radio and on the Internet. However what you see or hear will not necessarily be what you get. As with many things in life, mortgage rate offers always come with a catch. The catch in the case of mortgage rates is your credit rating.

Often when mortgage rates are quoted, the mortgage rates are based on the potential lendee (ie. you) having what is deemed as excellent credit. In today’s economy, the low end of that spectrum is a 700 credit score with the preferable rating being 720+. I know what you’re thinking: That’s a steep qualification in order to obtain the advertised mortgage rate. And you know what? You’re right.

 

There is, of course, a segment of the Canadian population who will have no problem qualifying for advertised mortgage rates because they do have that coveted 700+ credit score. However, a majority of the American population will fall short with credit scores posting in the 500s or 600s. These people are still able to buy homes but they may be offered a different mortgage rate from what was advertised.

 

The way mortgage rates work is that lendees are offered an initial mortgage rate based on what the lender thinks is fair; what’s “fair” is determined by the lendee’s credit score, which is presumed to be a direct reflection of how the lendee has managed credit that was extended to him / her in the past. Here’s an example:

 

Say you have three credit cards. One has a credit line of $3,000, another $12,000, and the third $20,000. The accounts are five, two, and ten years old respectively so you have a decent history of payment with each creditor. Your total debt, that is the amount that you owe creditors—is $5,000 collectively, thereby making your debt-to-credit ratio very low. Add in the fact that you’ve always paid these creditors, and other bills you owed on time. In this case, you would likely have that desirable 700+ credit score and a lender would view you as being an excellent lendee. Therefore, they would likely offer you the advertised mortgage rate.

 

Let’s make a slight change to the above scenario. In this case, suppose that the collective debt you owe is $20,000 instead of just $5000. That would increase your debt-to-credit ratio. As a result your credit score would likely be in the high 600s. Since you still have a history of making payments on-time you would still be a good candidate for a mortgage but your rate would be higher than the advertised mortgage rate.

 

Let’s look at one more change to the scenario. What do you think would happen to the mortgage rate you would be eligible for if, all other things in the previous example being the same, you missed payment or made late payments over the last year? If you guessed that your credit score would be in the low 600s or the mid to high 500s and that you would still be able to qualify for a mortgage, you’re right; the mortgage rate would, of course, be even higher than the previous example.

 

The point is that if you know that you’ve been highly responsible with credit extended to you in the past expect the advertised mortgage rate or a mortgage rate close to it if you’ve been mostly responsible with a few indiscretions. Expect a slightly higher rate if you’ve haven’t been very responsible at all. Expect a mortgage rate that’s significantly higher than the advertised mortgage rate. Knowing what kind of mortgage rate you’ll be eligible for is as simple as that! Now that you know what to expect, go get pre-qualified!

We trust this "What Mortgage Rate to Expect" information has helped you in deciding on a Mortgage. We look forward to getting you into a House or Condominium in Calgary.

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