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Hidden Factors You Need To Consider When Comparing Mortgage Rates

Hidden Factors You Need To Consider When Comparing Mortgage Rates

Couple comparing mortgage rates

Couple comparing mortgage ratesSo, you’ve been comparing mortgage rates online. You might have spotted some really low interest rates and thought, “Wow, that’s a great deal!” But hold on a second – are you sure you’re comparing apples to apples?

There are tons of different mortgages out there, and it’s super important to understand how they’re different from each other. But how do you figure out the best way to compare them? And what should you really be looking at?

Most people getting a home loan focus on the interest rate. That makes sense, right? After all, the interest rate decides how much extra you’ll pay on top of what you borrowed. But there’s more to the story than just the interest rate you see online. Other stuff can affect what mortgage rates you’ll be offered too.

Let me break it down for you and explain what else you should keep an eye on when you’re shopping for a new mortgage.

How You Should Be Comparing Mortgage Rates

Mortgages differ in several ways, including term length, whether they’re open or closed, how long the amortization period is, and interest rate. The interest rate is important for comparison and can explain the cost of different mortgages. Generally, lower interest rates mean fewer features. If you want more stability and flexibility, you can expect a higher interest rate.

When comparing mortgages, make sure you’re looking at similar options. Compare variable rate mortgages with other variable rate mortgages. If paying off your mortgage early is important and possible, you’ll want to look at open mortgages as opposed to closed mortgages.

Compare the APR, Not Just The Interest Rate

Start by finding a low interest rate, deciding between a fixed or variable mortgage, and choosing the loan term. Then, look at the loan’s annual percentage rate (APR) for a better comparison between lenders. The APR includes the interest rate plus any additional fees and costs, giving you a clearer picture of the total borrowing cost. This can vary between lenders.

What Can Affect The Mortgage Rate You’re Offered

After choosing the term and rate type for their mortgage, people often notice that rates for the same term can differ by a percentage point or more. Many factors can prevent borrowers from getting the best deal.

Longer rate holds typically mean higher interest rates. This is because lenders face increased costs when guaranteeing rates far into the future. The lowest rates are usually for “quick closes” – mortgages completed within 30-45 days of application. Applying closer to your closing date can potentially save you 0.1-0.2 percentage points. However, this strategy risks rates increasing while you wait.

Refinancing can affect your rate. Buyers transferring their mortgage at maturity to another lender often get better rates than those refinancing. You essentially become a “free agent” when your mortgage is up for renewal and can move your mortgage at best rates. Be aware, if you add money (more than $3,000) or change your amortization your new loan will be categorized as a refinance. This could add legal fees and appraisal costs to the transaction, in addition to higher rate.

You want to buy an unusual property type. Some lenders charge higher rates for:

  • High-rise condos, especially in potentially overheated markets

  • Cottages

  • Co-ops

  • Hotel condos

  • Former grow-ops

  • Larger multi-unit residences

  • Other non-standard structures

These properties are often seen as riskier investments by lenders, which can result in higher interest rates.

You don’t live on the property. Income properties don’t usually don’t get the best rates. If you’re buying a property as an investment and don’t plan to live there, expect to pay more interest. Lenders and investors see these deals as riskier, so they typically charge higher rates.

Your credit score matters: Aim for at least 680 to get the best rates, especially if you have more debt or a smaller down payment. But it’s not just about one number. Lenders also want to see that you’ve managed your credit well for the last two years without any big slip-ups.

Flexible mortgages might cost more: The lowest rates often come with catches. They might limit how much extra you can pay off each year or charge you big fees for changing your mortgage. These “no frills” options might save you money now but could cost you later if your plans change.

Insured mortgages can be cheaper: Oddly enough, if you put down less than 20%, you might get a better rate. That’s because these mortgages must be insured, which makes lenders feel safer.

Big mortgages can mean higher rates: If you’re borrowing a lot (like a million dollars), expect to pay more in interest. Lenders see these as riskier, so they charge more unless you have a big down payment.

Your income affects your rate: Just started a business? On probation at work? Self-employed? Can’t prove steady income for the last year or two? You might pay more. Lenders want to see that your debts won’t eat up more than about 40% of what you earn.

Looking For The Best Mortgage Rate? Ask Me To Find It For You.

Remember, every situation is different. It’s always a good idea to shop around and talk to an experienced mortgage broker to find the best deal for you specifically. I can find you the best rates and options even if you’re facing challenges as mortgage brokers like myself have more selection than traditional banks do. Let’s sit down and look at your financial situation to compare mortgage rates that apply specifically to you. And, in case you weren’t aware, working with a mortgage broker is free, so why not take advantage of that helping hand?

Contact me today and let’s get started! Give me a call at 705-315-0516, or book a consultation online and together we’ll find you that great mortgage rate you’re looking for.

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