The Canadian real estate market is in for a shake-up as the Bank of Canada lowered the prime overnight lending rate. Many aspiring homeowners will see this is an ideal opportunity to get started with their plans for homeownership. Buyers should think long and hard before choosing to purchase a home. “A drop of ¼ percentage point should never be the deciding factor in buying a home or not,” according to Examiner. If you were already in the market for a home and now you are in a better financial position to do so, here are some pointers for getting started.
- Mortgage rates
Mortgage Rates, quite simply, are the varied interest amounts for a home loan. The average buyer will need to qualify for a loan to be in a position to purchase a home. The principal amount of the home loan is used to determine the mortgage rate. The higher the balance of the loan the more the interest that is why mortgage rates are higher at the beginning of the loan when more money is owed to the principal. Prudent buyers shop for the lowest rate when purchasing their home because lower interest rates translate into less money owed over the life of the loan. Higher interest rates mean more money is added to the loan equaling larger totals. The larger amount of interest added to the principal amount make it more difficult to pay off the loan early without significant funds.
- How mortgage rates are granted
There are a number of factors that are considered when granting a mortgage to a potential homebuyer. The most important factors are market conditions, consumer sales, and personal finances. A borrower with stellar credit will receive the best terms and rates in the market regardless of many other conditions while some with poor credit may be unable to receive a loan. Other factors such as point provisions allow borrowers to lower their mortgage rate by buying it down. Each point is equivalent to upfront interest payment on the loan. Lowering principal amounts by increasing the down payment on a home can also result in a lower mortgage rate.
- Saving money on interest
One of the ways buyers try to save money on interest is by acquiring a mortgage broker. A broker will serve as a liaison between the buyer and several lenders. Because brokers often have relationships with lenders, they will know which financial institution is best suited to the situation of their client. Another way borrowers can avoid costly interest payments is by opting for a shorter repayment period. While this may mean larger monthly payments, it will still cost less interest that means more of your money goes toward the principal of your loan.