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Mortgages and Your Credit Score

Your credit score plays a big part in your ability to get favourable mortgage rates. Whether you're a first-time home buyer or looking to refinance your existing loan, you can access your free credit report, get tips to help you improve your score and easily compare mortgages across Canada.

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Resources to Help with Your Mortgage

Check and Improve Your Credit Score

Your credit score is mix of different factors that demonstrate your ability to borrow and manage credit. If you're looking to buy your first property or refinance an existing loan, a good credit score can help you get better rates and qualify for a greater number of mortgage products. Check and monitor your credit score for free (it takes less than 3 minutes). If you need to improve, you can get personalized tips based on your profile, track your progress and manage your monthly payments.

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Compare Rates, Credit & Refinancing

You can quickly compare rates on a wide range of financial products and see your likelihood of approval based on your credit profile. If you're looking to get a new mortgage, refinance or reduce your monthly payments, you can explore options from personal loans, lines of credit, credit cards and debt consolidation.

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Tools To Help You Manage

In addition to helping monitor and improve your credit, you can also get a variety of tools to help you gain more visibility and manage your finances. Access calculators, new features and fresh content monthly to help you understand mortgage topics, including pricing, deferrals and budgeting.

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3 Ways Borrowell Can Help

Free Equifax Credit Score

Sign up to get your free credit score and tips to improve your score and chances of mortgage approval.

Compare Mortgage Rates

Our Mortgage Coach will use your credit profile and ask a few simple questions to find and compare mortgage rates from 50+ lenders.

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Discuss your best rates with an experienced mortgage professional who can guide you through the process.

Quickly Verify Your Payment Deferral

Easily see if payment deferrals have been correctly reported to Equifax in your payment calendar, without having to contact your lender.

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Find Your Best Canadian Mortgage

What do you need to qualify for a mortgage?

A Good Credit Score

Lenders want to see few, or no blemishes on your credit report. One missed payment is okay, but if you have frequent occurrences or delinquencies you may need to invest in building up your credit report before applying. According to Equifax, lenders generally see credit scores of 660 and higher as lower-risk borrowers. Like everything else, there are always exceptions, but the higher your score at application the greater the likelihood of getting favourable rates.

Reasonable Debt Ratios

Your debt ratio is your ability to manage your monthly expenses relative to your gross income. If your monthly payment obligations (ie. mortgage amount, property taxes, utilities, condo fees, car payments) are more than 44% of your gross monthly income, you could struggle to get favourable offers. You will also need to pass the federally mandated ‘Stress Test,’ which means your ratio will be calculated at inflated rates to ensure you can still make your mortgage payments if interest rates eventually increase.

Income & Employment History

A mortgage broker or lender might ask you to prove your full income with tax documents and/or employer pay stubs. Typically, you will need at least one year of employment history, and a two-year history of any bonus income, commissions or part-time income. But again, there are exceptions for those who aren’t traditionally salaried or have recently started a new job.

Still Have Questions? We Have Answers.

What is a mortgage?

A mortgage is a loan secured by your home. It is financing that the customer is obliged to pay back with a predetermined set of monthly mortgage payments. A mortgage helps you buy property without having to pay the entire cost upfront.

What is a mortgage rate?

A mortgage rate is the interest charged by the lender expressed as a percentage of the loan amount. It’s essential to shop around and compare Canadian mortgage rates to find the product that best matches your lifestyle and financial goals. Having a higher credit score can help you get better rates, so be sure to check and monitor your credit score with Borrowell.

What is a down payment?

A down payment is a deposit you make on a large purchase, like a new home. Lenders in Canada require at least 5% down. Anything less than 20% down is called a high-ratio mortgage and requires mortgage default insurance.

What is amortization period vs. mortgage term?

Mortgage amortization and term are easily confused, but they are two different things! A mortgage amortization period is the amount of time it will take to pay your mortgage to zero with regular payments. A portion of each regular payment goes to interest costs, and a portion goes to reducing the loan balance (paying off the mortgage principal).

The mortgage term is the period of time the rate is negotiated for. Many Canadians will typically renew or switch providers at the end of their term. Most mortgage terms range from 6 months to 25 years, with 5 years being the most popular. If your mortgage amount is not paid off by the the end of the term, a new mortgage must be arranged.

What are fixed vs. variable interest rates?

A variable interest rate is a rate that may vary over the term of the mortgage. The rates are tied to a benchmark interest rates (often the lender's prime rate), which is primarily influenced by the interest rate set by the Bank of Canada.

When you're comparing mortgage rates, you'll see that variable rate mortgages typically offer lower interest rates than fixed rate mortgages.

What is an open mortgage and what is a closed mortgage?

A closed mortgage is one that can’t be prepaid, negotiated, or refinanced throughout the term of the mortgage without a prepayment penalty.

In contrast, an open mortgage can be repaid anytime throughout the mortgage term. These mortgages come at a premium, which usually translates into much higher interest costs and greater monthly mortgage payments.

What is the mortgage stress test?

Starting in 2018, the federal government introduced the mortgage ‘stress test’ for anyone applying for or renewing a home loan. The idea is to protect borrowers if interest rates are to increase and ensure you can make your monthly mortgage payment. There are various formulas, but if you take the weekly average five-year rate on all insured mortgages, and add and extra 2% OR take the rate offered by your lender plus an additional 2% you'll get an idea of your potential debt ratio.

Canada’s big banks are required to enforce these rules while other lenders, such as credit unions, use them to reduce risk exposure. So, even if you put down 20% and have great credit, you’ll still need to go through the new stress test.

What is the difference between insured, insurable and uninsured mortgages?

To get an insured mortgage, you need to have a minimum 10% down payment and less than 20%, the property must be valued between $500,000 and $1 million.

An insurable mortgage is similar to an insured mortgage except that you can put down more than 20% - the property must be valued at less than $1 million dollars. 

Every mortgage that cannot be insured falls into the uninsured mortgage category. This includes all properties valued at over $1 million, rental properties, refinances, and loans with amortization periods of more than 25 years. Interest rates are highest for these mortgages as it involves significant risk for lenders. 

Learn More on The Well

Understanding Payment Deferrals And Credit Scores During COVID-19

If you are experiencing reduced or limited income, you could be finding it hard to make monthly payments on time. However, defaulting or missing a due-date can cause a problem down the road, as payment history makes up 35% of your credit score. As a way to provide support during the coronavirus pandemic, big banks, lenders and governments are offering financial relief to help those struggling to make payments due to COVID-19.

Karman Kua

Mar 26, 2020

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