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Mistakes to Watch Out When Applying for a Mortgage

Purchasing your dream home is exciting. But you need to apply for a mortgage to turn your dream into reality. Perhaps you want to buy a small fixer-upper and make it your own. You build up some equity as you improve it. Or maybe you want to buy a larger, more expensive home to raise your family. Whatever your dream, you will have to apply for a mortgage.

Here are mistakes you need to avoid when applying for a mortgage:

1. You Do Not Know the True Cost of the Mortgage

It is easy to obtain a mortgage, but it is also easy to overspend. Many people do not truly understand the actual cost of their mortgage.

Many first-time homebuyers mistake asking how much they can afford, not how much the mortgage will cost. It does not matter what the money is worth. You need to make the payments on time. Therefore, it is essential to know the actual cost of your mortgage.

A mortgage can become costly very quickly. You also need to consider taxes, insurance, and private mortgage insurance. There are a lot of hidden costs that you need to consider.

2. You Co-sign for Others

There is a growing trend of young people who are co-signing for parents or friends. If the parent or friend has a poor credit history, the bank is not likely to give that person credit. But, if the parents or friend has a good credit history, it does not make sense to co-sign for that person.

For example, your parents want you to co-sign for a mortgage. The bank will not give them a loan because of their credit history. You, on the other hand, have an excellent credit history. The bank will be more likely to accept your application. However, if you co-sign on this mortgage, you will be responsible for it and the monthly payment.

If you have good credit, the bank should be willing to give you a loan. If they will not, you do not have to co-sign for someone.

3. You Should Max Out Your Credit Cards

Between the home purchase and selecting new furniture, you will have a lot of expenses. You need to get a credit card to cover these expenses.

Many people think they need to max out their credit cards to get a better score. However, this will just hurt your credit score. Instead, you need to only use a little bit of the credit limit on your credit card.

When you pay off the credit card on time, you will build up your credit score. This will help you get approved for a mortgage later on.

4. You Do Not Do Your Homework

When looking for a home, you need to search for the right one. You have to consider what you can afford, your location preferences, the size of the house, and so on.

Many people do not do their homework and apply for a mortgage for a home they cannot afford. You need to do the math to see if you can afford the home. It is crucial to consider the cost of housing, the monthly payment, and the extra costs.

You also need to research and find a lender that you can trust. It would help if you ensured that the lender is reputable and has a good reputation.

Conclusion

A mortgage is a big decision. You will have to make regular payments for a long time. If you make a mistake, the costs can add up quickly. You can incur high penalties and other fees.

If you are looking for the best refinance rates in Ottawa, Ottawa Mortgage Services is here to help you. We are ready to provide mortgage agent services. Apply now!

looking at house

Review These Essential Questions to Ask Your Mortgage Agent

Taking out a mortgage is a significant decision in your life that shouldn’t be made lightly. To ensure that you are getting everything you need out of the process, you need to ask the right questions to your mortgage agent. The following questions will help you get the information you need from your mortgage company:

How Many Years of Experience Do You Have in This Line of Work?

A mortgage agent should be a professional who knows the industry well. You should be able to tell from the answers to your questions the level of experience your loan officer has. Maintain a healthy skepticism if your loan specialist is new to their job or the mortgage industry in general.

How Long Have You Worked for Your Company?

An experienced mortgage agent will also have been with their company for a time. You should be wary if your loan officer has only been with their company for a short time. You should ask for the loan specialist’s manager’s name and contact information if possible.

What’s the Best Way to Get in Touch With You?

By asking your mortgage agent this question, you will be able to know how receptive they will be to your calls, emails, or texts. Your loan officer should be able to give you several different ways to contact them. Additionally, the person you are speaking with should be able to answer your questions promptly.

Are You Part of Any Industry Groups?

Based on their answer, you can tell whether they are active in their industry or not. Questions like this will help you determine whether your agent is actively trying to improve their knowledge and skills.

Who Will Process My Loan Application?

You should be able to tell a lot about your mortgage agent based on their answer to this question. If they answer with their own name, you will know that they are the one who will be making your loan application. However, if they answer that you will have to deal with someone else, you will know that they are not the one who will be processing your loan.

How Long Is Your Typical Loan Process?

A good mortgage agent will be able to tell you how long their typical loan process takes. You can also ask each loan specialist to provide you with a ballpark figure of how long their process takes. Understanding the process and how it impacts you is very important.

How Will You Contact Me During the Process?

A good loan officer will have several ways they can contact you. Each method should be used in different circumstances. They should also be willing to communicate with you in a manner that is convenient to you.

What Type of Loan Do You Recommend for My Needs?

Your mortgage agent should be able to clearly explain the different loans that are available for your needs. They should also be able to explain each loan’s pros and cons clearly. Additionally, a good one should show that they are knowledgeable about each loan.

Conclusion

The mortgage process is long and tedious. However, it doesn’t have to drain your energy, stress you out, and make you feel like a head of cattle. By asking the right questions, you’ll be able to find a mortgage specialist who knows what they’re doing.

If you need mortgage services in Ottawa, trust Ottawa Mortgage Services. We are committed to guiding you through refinancing, preapproval, debt consolidation, and more. Apply now!

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Everything You Need to Know About a Mortgage Stress Test

We expect the best every day: We carry umbrellas when it’s cloudy, pop Gravols before a long flight, and buy travel insurance when going overseas. We don’t take on mortgages without doing a similar type of preparation! A mortgage stress test is a good way of preparing yourself for a potentially bad situation. This blog post will help shed light on how this test works.

Everything You Need to Know About a Mortgage Stress Test

The stress test is used to determine the maximum amount of money that you can afford to borrow. It is calculated by looking at how much your mortgage payments will increase (relative to the present interest rate) if you have a higher interest rate for a set period of time. The set period is either 2 or 3 years, depending on the lender.

Why do I need a stress test?

The stress test ensures that you have enough money to comfortably pay off your mortgage, even when rates increase. It is a way for the bank to ensure that you will have enough money left over after paying your mortgage.

How does a stress test work?

When you apply for a mortgage, the bank or lender will find the maximum amount that you can afford to pay after a certain period. This is the maximum amount that you can afford to borrow. They then calculate how much money you would need to have on hand if interest rates increased by a certain percentage (~ 2-3%). They then use the greater of these two figures to determine the amount you can borrow.

How to stress-test your mortgage

There are two different types of mortgage stress tests – an interest rate stress test and a credit stress test.

Interest Rate Stress Test

The interest rate stress test is used specifically to show that you can afford your mortgage if interest rates increase by a certain amount. This is a mandatory test for all borrowers who apply for a mortgage. The test uses a common mortgage stress test formula, where the mortgage rate is multiplied by the amount that you borrowed and then divided by the purchase price of your home.

Credit Stress Test

The credit stress test is used to show the lender that you can still pay off a mortgage if interest rates increase, even if you have a bad credit score. This test is not mandatory, and only some lenders require it. This test is also used to assess your ability to pay off your mortgage if interest rates increase and your credit score decreases.

Conclusion

The stress test is used to determine whether you can afford your mortgage in the case of an interest rate increase. It is mandatory for all mortgage loans. If the lender does not perform a stress test, the risk of default increases. You can do your own test by using an online mortgage calculator. If you have further questions about the stress test or about taking out a mortgage in general, seeking advice from a mortgage agent is the right way to go. 

If you are a first-time home buyer in Ottawa, contact Ottawa Mortgage Services. We provide mortgage agent services for first-time home buyers, self-employed individuals, commercial clients. We also help with refinancing, pre-approvals, and debt consolidation.

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Home Equity Loan vs HELOC: Which Should You Choose?

Home is where your heart is, but according to a recent survey, it’s also the heart of your investment portfolio. It’s worth a lot of money and can be an asset that you strategically use to your advantage. To do so, you have to make sure that you take steps to protect that investment. Otherwise, you increase your risk of foreclosure or power of sale.

Canadians typically use their homes as stepping stones to their investments. A home is an asset that’s valuable in the ways you use it strategically. It helps you reach your goals. That’s why you need to know how to protect it if you want it to continue serving you well. Home equity loans and home equity lines of credit are different ways of doing that, but it is important to know how they differ. Here are the steps you need to take when comparing a home equity loan to a HELOC.

Home Equity Loan vs HELOC: Which Should You Choose?

What is a Home Equity Loan?

A home equity loan is a loan that’s secured by the equity in your home. That means it’s backed by the value of your home and your mortgage. The amount you can borrow depends on the value of your home and your mortgage. It’s usually a fixed-rate loan where you can borrow 80% to 85% of your home value. That means that with a $100,000 home, you can borrow $80,000 to $85,000. You have to repay it over 10 to 15 years.

What is a HELOC?

A home equity line of credit, or HELOC, is similar to a loan. It’s unsecured and doesn’t require any collateral. It enables you to borrow money in as little as $2,500 increments. You can access that money when you need it up to your line of credit limit. It has variable interest rates, so they can change over time.

Because of the way a HELOC works, you pay interest only on the money you borrow. When you borrow money, it’s called a draw. You don’t pay interest until you take a draw. You repay the borrowed amount and the accrued interest. That’s why they are often called “interest-only loans.”

That means that when you take a HELOC, you pay just interest, which is usually much more affordable than a loan. HELOC rates are usually lower than for a home equity loan, and you can use them for other purposes. It’s also a way to use your home as equity to fund renovations, consolidate debt, pay for education and more. It’s a revolving line of credit. That means you can draw money as you need it and repay it when you can.

You have to pay interest on a HELOC whether or not you have a draw. The interest rates for both the home equity loan and HELOC may be fixed or variable. You can choose either to suit your needs.

Which Should You Choose?

A HELOC is better than a home equity loan if you want to save money, and you don’t need all the money immediately. The interest is less expensive, so you save money on interest. That’s especially true if the rates are variable. That’s also true if you want flexibility with the money. You can access the money as needed with a HELOC, whereas you must take the loan amount in a home equity loan.

But a home equity loan is better if you need an immediate source of emergency cash. If you are in dire straits, a home equity loan is available to you immediately. Because it’s a secured loan, you don’t have to jump through hoops to get one when you need it.

If you are looking for a home equity loan in Ottawa, come to Ottawa Mortgage Services. We provide mortgage agent services for first-time homebuyers, self-employed individuals, commercial clients. We also helps with refinancing, pre-approvals, and debt consolidation.

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What to Do with a Rejected Mortgage Loan Application

When you apply for a mortgage loan, there’s no guarantee that it will be accepted. So, you need to prepare in case your mortgage loan application gets denied. And with this guide, you can hopefully figure out what your next steps would be if your application was rejected. 

Identify the Reason for the Rejection

If your application is rejected, the lender will send a letter explaining why. They may give you an estimate of how long you have to fix the situation before your application will be considered again. In some cases, your mortgage loan application may be denied due to an irregularity in your credit report. If that’s the case, your credit report will be ordered to identify the problem.

If there is a problem, such as an unpaid bill or loan, or past due tax payment, you will be given a chance to make it right. If there are errors on your credit report, you should contact the service that provided it to identify the problem and make corrections.

Even if your application gets denied, you can still check your credit report for errors.

Apply for a Different Loan

If your mortgage application is denied, you may be able to find another solution. If you’ve already got another loan in progress, you may be able to refinance it to get a better interest rate. Or you may be able to find a less expensive home that you can still afford.

If you’re trying to get a new mortgage loan, you can take the time to get your finances in order and reapply. If you have an irregularity on your credit report, you can choose to wait until you get your credit report back and try to make the necessary corrections.

If you’re applying for a fixed-rate loan, you can reapply once your credit score and other financial numbers are back in a range the lender is satisfied with.

Take Action to Get Your Finances in Order

If your application is rejected because your finances aren’t in order, you’ll have to work on them before you reapply. You might be asked to pay down your debt, address bill or loan payments you’re currently ignoring, or get your savings account up to a certain level.

This will require you to work on your finances and make the necessary changes.

If you have a hard time paying your current bills, you may want to consider working with a credit counsellor. If you have unpaid bills, you can use a service like National Debt Relief to negotiate and consolidate your bills into one to make it easier to pay. If you have high-interest rate credit cards, you can work with a card consolidation company to get better rates and make it easier to pay off your debt.

A small change to your finances can make a big difference to your credit. And it can help you get a mortgage loan that you can afford.

Final Thoughts

As you can see, there are many reasons why your mortgage loan application could be rejected. But it’s not the end of the road. You just need to identify the problem and address it. You can work on your finances, wait for your credit report to be corrected, or search for a different home loan. If you can make the necessary changes, you could end up with a mortgage that you can afford.​

Finance your home now with the help of Ottawa Mortgage Services. We are a mortgage agent in Ottawa that provides services for first-time homebuyers, self-employed individuals, and commercial clients. We are actively involved in the mortgage industry and have a great deal of experience preparing mortgages, dealing with lenders and negotiating all aspects of mortgage underwriting. Apply now!

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How to Know if Your Credit Score is Enough to Buy a Home

Every time you apply for credit, whether it’s a home loan, a credit card or even an apartment lease, the lender checks your credit score. This score is based on your personal credit history and determines how risky you are as a borrower. Higher scores give you better chances of getting the best interest rates and mortgages. 

Think of your credit score as your personal credit report’s grade. Today, let’s take a closer look at credit scores. How do you know if your credit is enough to buy a home?

Here’s what you need to know:

What is a Low Credit Score?

Credit scores can range from 300 to 850. It’s the most commonly used credit score in the U.S. Typically. You can only get a reasonable interest rate if you have at least a 700 credit score when applying for a mortgage.

However, this number is not absolute. A few lenders are willing to work with borrowers with a lower credit score because they have a high income and large down payment.

Furthermore, some lenders may be willing to give you a loan even with a credit score under 620. But that’s generally considered a subprime loan and typically comes with significantly higher interest rates.

How are Credit Scores Work?

Usually, people with good credit scores are likely to pay their bills on time and are less likely to default on their mortgage loans. Mortgage lenders use credit scores as a measure of your creditworthiness. They want to know if you can pay back the loan and if you’re likely to default.

Your credit score is based on your historical payment history and represents your loan repayment likelihood. If you have a good score, the lender may be willing to lend you more money at a lower rate. If you have a bad score, you’re more likely to get a high-interest rate.

How to Improve Your Credit Score

The credit score is largely based on your payment history. Therefore, if you have a low score, take steps to improve it by paying your bills on time. The credit bureaus will likely improve your score if it shows that you have been paying your bills on time. The goal is to have a FICO score of around 750 or higher in most cases.

What is the Best Credit Score for a Mortgage?

Credit scores range from 300 to 850. If you’re applying for a mortgage, you’re aiming for at least a score of 740. However, this number is not absolute. There will be lenders willing to work with borrowers with a lower credit score because they have a high income and large down payment.

Additionally, if you have less than perfect credit, you may be able to buy a home if you have a cosigner.

Conclusion

Improve your credit score. The higher your credit score, the better your chances of getting the best interest rates and mortgages. Lenders will also be more likely to approve your mortgage loan if you have a decent credit score. If you are ready to buy a home, we can help you find the best mortgage rates and the best home loans for your financial situation.

If you are looking for mortgage services in your area, we can help you. Ottawa Mortgage Services provides mortgage agent services for first-time homebuyers, self-employed individuals, and commercial clients. It also helps with refinancing, pre-approvals, and debt consolidation. Contact us today to learn more or get started. Apply online now!

Mortgage

Mortgage Prequalification vs Pre-Approval: What’s the Difference?

The home buying journey can seem quite simple, but it is important to understand the process and the terminology used along the way. By becoming more familiar with the mortgage home-buying process, you can purchase the home of your dreams, using the correct terminology and getting the best interest rates and mortgage rates possible. 

With that in mind, there are two terms you need to clarify before moving forward with your home buying journey: pre-qualification and pre-approval. 

Prequalification and pre-approval are letters provided by mortgage lenders and financial institutions to show that your mortgage application is being reviewed and evaluated by the mortgage lender. Unfortunately, many home buyers often interchange the two. 

Mortgage Prequalification vs Pre-Approval: What’s the Difference?

What is Prequalification?

Prequalification is the phase of the mortgage process where the home buyer submits to the lender documents that are required for the mortgage lender to conduct a preliminary review of the home buyer’s credit history, income, employment and assets. 

During this phase, the home buyer does not provide documents regarding the property that they intend to purchase. The borrower simply tells the lender how much they are wishing to borrow, and how they plan to use the funds. 

The lender then evaluates the borrower’s income, debt, and credit information and provides an estimate of how much they would be able to borrow based on their financial situation.

In general, homebuyers should know how much they can afford to borrow before they wish to purchase a property. A mortgage prequalification determines how much the lender thinks they can lend. 

The prequalification really is only an opinion of the lender and is not a final decision of the amount the lender will allow.

What is Pre-Approval?

Pre-approval is the phase of the home buying process where the home lender actually evaluates the borrower’s credit, income, and financial information to determine if the borrower qualifies for a specific loan, the loan amount, and the interest rate. 

The lender will then provide to the borrower a conditional commitment letter (“pre-approval”) that states the amount that the borrower can borrow and the interest rate for the loan. 

As part of the pre-approval process, the borrower must submit to the lender any documents regarding the property that they desire to purchase, and the lender then conducts a more thorough review of the buyer’s financial situation. 

The lender will examine the appraisal of the property, and verify that the buyer’s income and assets are sufficient to pay for the purchase, and still meet the debt-to-income ratio requirements.

Why You Need Both Prequalification and Pre-Approval

During the home buying process, pre-qualification and pre-approval are both very important because they can provide the following benefits:

Pre-Qualification

  • Helps determine if you can afford to buy a property or not;
  • Establishes a price range for homes that you can afford;
  • Identifies properties that you can afford;
  • Gives you a sense of how much home you can afford;
  • Helps you find homes that are within your buying budget;
  • Helps you find a lender that meets your needs and requirements;

Pre-Approval

  • Helps you evaluate and negotiate with the seller;
  • Provides you with a benchmark for interest rates;
  • Establishes a preliminary agreement between the seller and buyer;
  • Helps a seller determine if you are a serious buyer.

The Bottom Line: Know the Difference Between the Prequalification and Pre-Approval in the Mortgage Process

Both pre-qualification and pre-approval are important stages of the mortgage process. Pre-qualification can be described as a pre-opinion, where the lender helps you understand how much money you can borrow. Pre-approval is confirmation, where the lender verifies your ability to borrow the amount of money that you desire.

By understanding the difference between these two terms, and what to expect from each phase, you can be well on your way to purchasing the home of your dreams.

How Can We Help You?

Finding and buying a home can be tricky, especially when you put your finances into the picture. Fortunately, with the help of Ottawa Mortgage Services, buying your home for the first time won’t be such a pain. 

Our expert mortgage agent in Ottawa Mortgage Services helps first-time homebuyers discover the different possibilities in home buying, get pre-approval letters, obtain assistance for refinancing, offer debt consolidation, and more. Looking for a mortgage? Apply for one today!

Refinancing Your Mortgage

5 Considerations to Make When Refinancing Your Mortgage

Mortgage refinancing can be such a great option in Canada, as there’s the possibility of saving a considerable amount every year on your mortgage payments via one big payment each month if you play your cards right. Many homeowners take advantage of this opportunity once their mortgage terms are over and the opportunity to do so arises.

However, there are some important considerations you’ll have to make when thinking of refinancing your mortgage. It’s best to ask yourself and a mortgage service many questions to clarify how you should approach refinancing your mortgage.

Here are some key considerations to note for your mortgage refinancing.

1) Credit Score

Credit scores can make a huge difference in getting approval for mortgage refinances. If you have a low credit score, it will potentially be more difficult to get a mortgage refinancing deal that you’ll be happy with.

Lenders will study your credit report and history to see if you’re eligible for a mortgage refinance. Each lender will have their own ways of gauging and confirming an applicant’s eligibility. It’s best to determine what the ideal score is and work your way towards that.

2) Home Equity

If you have a lot of equity in your home, you are a more desirable candidate for a mortgage refinance deal. However, if your situation is the opposite, you should probably think of other ways to save money that’ll allow you to shoulder refinancing.

Some Canadian homeowners like to downsize their home or add a suite to it to increase their home equity. You can try to refinance the mortgage with another lender but take their potential approval into consideration.

3) Interest Rates

Interest rates play a large role in obtaining a mortgage refinance. Generally, the lower the rate, the better it is for you. If the rates are too high when you want to get into refinancing, then you should hold off or strike a bargain.

Remember that there will be multiple interest rates that you would need to assess. Your current payments, the new expenses you’ll be making, and how long it will take you to pay off your mortgage are all key factors when it comes to refinancing your mortgage.

4) Refinancing Rates

Speaking of rates, you’ll also want to soberly assess the refinancing rates. If you want to decrease your monthly payments, then you’ll need to assess if the prices are reasonable enough for you to handle.

Ultimately, the goal is to get a mortgage to refinance with a better rate than your current mortgage, and then you’ll save money on your final deal. Refinancing rates are often lower than your actual mortgage rates when dealing with the right lender.

5) Mortgage Options

There are plenty of mortgage options to choose from when it comes to refinancing. You’ll want to be especially careful and consider all of them, as there’s a lot that’s at stake – your money, your home, and your credit.

The main mortgage options to consider are breaking your mortgage into shorter terms or turning it into one big monthly payment. The latter is more common in mortgage refinancing, as it’s the best option to make one huge payment that saves you the most money.

Conclusion

If you’re thinking of refinancing your mortgage in Canada, then you should think of what you stand to gain and lose. By doing an assessment and discussion, you get to consider what would be the most beneficial for you.

Looking for the best refinance rates in Ottawa? Ottawa Mortgage Services provides mortgage agent services to residents and commercial clients who need refinancing, debt consolidation and more. Contact us today!

Mortgage letters

Mortgage Pre-Approval Letters: Why Do You Need One

When we purchase a home, there is always a lot of paperwork involved. But let’s face it, most of us don’t enjoy that part. However, all the documents we fill out are immensely important. For example, one of the most important forms you’ll need is the pre-approval letter when applying for a mortgage. It tells the mortgage company about your financial situation and makes for a smoother process.

What Is a Pre-Approval Letter?

Basically, a pre-approval letter is a letter lenders give to the potential homebuyer in advance. It’s a pre-approval of the final mortgage amount that the lender can give. This letter highlights how much money a potential homebuyer can get based on their income and assets, among other things. It helps homebuyers figure out how much they can spend on a home once they buy it.

How the Amount is Determined for a Pre-Approval Letter

The amount of a pre-approval letter is based on the borrower’s income, assets, and other factors. Things like your credit score, ability to pay the mortgage, or your occupation will all be taken into consideration. 

Pre-approval amounts can vary depending on the lender and the type of loan. Typically, a pre-approval letter will be in the ballpark of the amount of the mortgage loan that you’ll be getting.

Why Is It Important to Have a Pre-approval Letter?

Pre-approval letters make it easier to complete the financial aspects of purchasing a home. The letter establishes the borrower’s creditworthiness and shows the lender that they’re a good candidate for the loan. It also helps you figure out how much you can spend on a home.

When a buyer has a lot of stress weighing on them, pre-approval letters can help by giving them a clear idea of what their financial situation is.

How to Get Pre-Approved for a Mortgage

Here are some steps to get pre-approved for a mortgage:

  • Contact a few lenders to see who will give you the best rates and options for your mortgage.
  • Get pre-qualified for a mortgage.
  • Once you get pre-approved, the lender will let you know what your maximum mortgage amount will be.
  • Discuss the mortgage options with your real estate agent.
  • Pick a home and make an offer. (The lender will ask for a copy of your pre-approval letter).

If you’re pre-approved for a mortgage, there are some things you need to know. Once you’re pre-approved for a mortgage, you still have to apply for the mortgage. You’re only pre-approved because this pre-approval is subject to a number of factors. Your offer price, the appraised value of your home, or any other conditions may affect your approval.

Also, make sure that you don’t sign anything where you agree to borrow more than you’re pre-approved for. You can’t sell your home for more than the assessed value.

Get Pre-Approved Today

Getting pre-approved for a mortgage is a great way to ensure that you can afford the home you want to buy. The pre-approval letter shows the mortgage lender that you’re a good candidate for the loan and helps you determine how much you can spend on a home. Pre-approval letters can be really helpful when you’re buying a home! 

Let us help you with your mortgage pre-approval letter in Ottawa. Here at Ottawa Mortgage Services, we provide our services to first-time homebuyers, self-employed individuals, and commercial clients. Get in touch with us!

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Are Mortgage Rates Going Up Or Down? Here’s How You Can Tell

If you have a mortgage, you are pretty concerned about interest rates! Mortgages grow more costly when interest rates rise. It becomes considerably simpler to keep up with a mortgage when interest rates fall. The issue is that you’re not only buying a mortgage based on today’s rate; your mortgage will be susceptible to changing interest rates over time, often spanning decades.

As a result, it’s critical to understand if mortgage rates in Canada are rising or falling. This is a complicated issue to address; however, we can discuss a few points that may be helpful. In this post, we’ll discuss mortgage rates, but many of the same laws apply to other forms of interest rates, so we’ll use the words interchangeably.

How to Tell Whether Interest Rates Are Rising or Falling

It’s impossible to predict whether interest rates will climb or fall, but there are techniques to make educated predictions. Understanding the status of the national economy, the global economy, and your present social and political situations can help you predict whether mortgage rates will climb or decline.

We understand that seems complicated, so don’t worry. We’ve discussed some of the primary variables that influence interest rates, as well as what to look for in each one, below. Consider each of the indicators listed below to determine if mortgage rates are growing or lowering.

How banks set mortgage rates (the cost of lending)

One of the main things you’ll hear about today is the cost of lending. This isn’t an abstract concept, but it’s not something that’s easy to understand either.

The cost of lending is the amount of money a bank has to make to keep itself afloat. It’s a massive part of what makes lending possible, and it’s no mystery why banks want to make lots of money in this regard.

Economic conditions 

In theory, the national economy dictates how many people have jobs, how much money they make, and how much money people can spend on homes. If the economy is good, more people have jobs, so people can afford to buy more homes.

Similarly, the economy sets the tone for how many people are looking to put their money in banks to earn interest. The more people that want to make the most of their money, the more competition they make for banks to get their money.

Because the national economy can give a sense of how much money is going around, we may predict how many people will want to invest. The more people are interested in investing, the more competition there is for banks to loan money, and the more that bank rate will rise.

The Impact of Rare Events

Rare events are unlikely to happen and will significantly impact the economy if they happen. Because of this, we can’t accurately predict whether a rare event will happen.

This is why interest rates are so tricky. If a major disaster hits, interest rates could fall through the floor for years. Interest rates can take off if the stock market crashes and the economy is thrown into a free fall.

Competition Between Banks

Banks don’t want to be the only bank lending money for their interest rates to be one percent per year less than their competitors. They have to have a competitive interest rate to make money.

Furthermore, banks want to be competitive with foreign banks. If the Canadian dollar is weak, it’s harder for Canadian banks to compete with foreign banks.

Conclusion

It’s virtually impossible to know whether interest rates will rise or fall based on the current landscape. It’s possible to get a sense of how interest rates might climb or fall in the future; however, you should always consider the impact of rare events.

Ottawa Mortgage Services provides mortgage agent services for first-time homebuyers, self-employed individuals, commercial clients, and more. We also help clients with refinancing, pre-approvals, and debt consolidation. If you’re a first-time home buyer in Ottawa, we can help you find the right mortgage in the right neighbourhood. Get in touch with us today and let us know how we can help!