Categorized | Business

THE MORTGAGE GLOSSARY: What is the Qualifying Rate?

Posted on 25 June 2014 by admin

By Nitesh Kumar

Brampton

In 2010, the Department of Finance introduced the Qualifying Rate as a new way to assess borrower eligibility and ensure borrowers can handle their payments should rates begin to rise. Your lender will use the qualifying rate to calculate your debt service ratios, which must be at or below their guidelines.

The qualifying rate is a 5-year rate published every week by the Bank of Canada. For terms less than 5 years and for all variable rate mortgages, the qualifying interest rate is used if it is higher than the contract rate. For 5-year terms and longer, the qualifying rate is the contract rate i.e the rate your lender is offering you.

What does the qualifying rate mean to you?

  1. The qualifying rate applies when you want a variable or 1 to 4-year fixed mortgage. The qualifying rate is typically higher than the rate being offered by your lender.
  2. It is not used for qualifying 5-year fixed mortgages; you qualify based on the contract rate.
  3. A 5-year fixed mortgage may be the only term that qualifies you for the mortgage amount you need.
  4. Your actual payments are based on your contract rate, not the higher qualifying rate.

We are experts at providing the advice, education and resources that homebuyers need. It’s important that you understand the terms you encounter when making what is likely your biggest purchase decision.

We’re here to help you!

The Five “C”s of Credit

Going to a lender to ask for a mortgage can be a nerve-wrecking experience when you’re not sure what to expect. Before you go looking for credit, take a few minutes to understand what lenders are looking for: the five “C”s of credit.

How might you stack up in a lender’s analysis of the five C’s of credit?

Capacity: Be prepared to show a lender that you can afford your payments. The lender will look at your income from all sources, and compare that with your monthly financial obligations.

Capital: Your down payment demonstrates that you can save and accumulate assets, and that you are more likely to do all you can to keep up with your mortgage payments.

Collateral: This is the lender’s assurance that the mortgaged property is marketable and can be re-sold to recover the investment.

Credit: Your habits in meeting your debt obligations will be evaluated. Do you consistently pay your debts on time?

Character: Are you sufficiently trustworthy to meet your obligations? Your education and work experience will be factors, along with length of time at your current residence and job.

Good communication is essential to credit success. You want the lender to see that you and your business are a good investment. Let us show you how!

Nitesh Kumar is a Mortgage Broker with Mortgage Intelligence. He can be reached at 416-419-2566 or visit his website @ www.niteshkumar.com FSCO lic M08001411

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