Many buyers make the mistake of falling in love with a house and then going directly to their bank for a loan. Chances are good that the banker will review your credit and make an offer you could refuse — if you knew a little bit more about the process. The best way to learn is by talking to an experienced mortgage broker and getting pre-approved before you go house hunting. With a little knowledge and preparation, you will be far more likely to have your pick of the lowest Calgary mortgage rates.
When you begin discussing rates with your broker, one term you will hear frequently is “prime rate”. What does this mean, and how does it affect your mortgage? Read on to learn the secrets to getting the best rate.
What is the Prime Rate?
Lending rates are based on risk. Applicants with less chance of defaulting on their loans will be offered the best rates. The prime interest rate is the rate that commercial banks charge their most credit-worthy customers, which are typically large corporations or other banks. In fact, these customers are often able to borrow at rates below prime. The Canadian prime rate rises and falls along with the economy and is heavily influenced by the overnight rate set by the Bank of Canada.
What Influences the Prime Rate?
Canadian monetary policy has a long-term goal to avoid inflation and also, depending on conditions, short-term goals like reducing unemployment. Eight times a year the Bank of Canada sets the overnight rate in response to trends it sees exerting economic pressures on the market. In the past, the prime rate has been about 2 per cent more than the overnight rate. When the Bank of Canada adjusts its prime rate, the five major Canadian banks usually do the same. There isn’t always an immediate response, and sometimes the prime rate has varied from bank to bank.
How does the prime rate affect Calgary mortgage rates?
Variable rate mortgage loans track the prime lending rate and include an adjustment amount that is added or subtracted from the prime rate. In times when the prime rate is high, lenders will offer variable rate mortgages with a greater adjustment value. When rates are lower and the profit margins reduced the adjustment value goes down. An analysis of mortgage trends, shows a steady decline in rates since the 1980s.
How Can You Qualify for the Best Rate?
To be eligible for the lowest Calgary mortgage rates you need to do everything you can to be less of a risk to the lender. With an improving economy and low inflation, today’s rates are nearly as low as they have ever been. Why wouldn’t you want to get the best rate you could? With a little planning ahead, you can improve your credit score and become a more desirable applicant. Here are a few tips:
- Maintain your credit score by paying all your bills on time…even cell phone bills are considered.
- Eliminate as much of your debt as possible. Paying off credit card debt will improve your debt to income ratio.
- Use a mortgage calculator to get a good idea what you can afford before applying for a loan.
- Save money for a larger down payment. By putting down as much as possible, you demonstrate responsible money management and show your lender that you are making a serious commitment towards keeping your home and intend to pay your mortgage in full.
- If your credit record is less than perfect, be prepared to discuss reasons for the flaws and how your situation has improved. You aren’t trying to justify poor decisions, but if you experienced a hardship (like a serious medical condition, divorce, or death of a spouse) that caused you financial difficulty, providing context will help your lender see that they are not taking a risk by offering you a loan now.
With a little research and planning you can take advantage of today’s prime rate. Because brokers aren’t tied to any single lender’s products, they are able to select a home loan for you from among the best low Calgary mortgage rates and still meets your specific financial needs. Contact Mortgages by Candice today to learn more!