Frequently Asked Questions

(1) Bad Credit Won’t Stop You from Getting a Mortgage

Did you hurt your credit when you were younger? Have you given up on your dream of ever owning a home because of your bad credit? I have good news for you: even people with credit that may not be perfect can qualify for a mortgage these days. Like anything worth having, it will take some work, but it will be so worth it in the end. Let’s figure out how to get this done.

Be aware of your credit score
Knowledge is power. Your first step is to find out what your credit score is and figure out what you can do right now to make it a little better. Get a copy of your credit report—some companies offer them to you free—and study it. Figure out what is an easy fix and what is not. It won’t improve overnight, but, at the very least, now is the time to stop doing things that hurt your credit.

Subprime Mortgages
A subprime mortgage is one that is generally offered to those with low credit scores when they do not qualify for any conventional loan. There are several different kinds of subprime mortgages to choose from, the most popular being the ARM or adjustable rate mortgage, also called a variable rate mortgage. These types of loans have an introductory interest rate that lasts for a period of time, after which it will be adjusted annually, based on the LIBOR (IntercontinentalExchange London Interbank Offered Rate.) This can be dangerous because, as your interest rate rises, so will your payments, possibly putting you in a situation where you are unable to make the payments. However, if you are prepared for this increase, it will be manageable and, the truth is, this may be the only open avenue you have for buying a home right now.

The bottom line
There is hope for you even if you have made unwise credit decisions in the past. Many lenders have become less strict about the numbers and try to look past them to the people. They realize in some cases that the credit score does not tell the whole story and that there are times when good, responsible people have had hard financial times and have made some bad decisions. It is key to clean up your credit starting right now and begin moving towards your goal of owning a home. You will get there sooner than you think.

(2) The Difference Between a Fixed and Variable Rate: Which One Will Suit You

Deciding between a fixed and variable interest rate is one of the most important decisions you can make when buying a home. This choice is very difficult because one must consider his or her own lifestyle and finances before knowing which rate is the best for him or her.

What is a fixed mortgage rate?
A fixed mortgage is decided by chartered banks in relation to the bond market. The bond market is a financial market which is used by participants to issue new debt. This is known as the primary market. There is also the secondary market which is used by participants to buy and sell debt securities. This is generally in the form of bonds but it may also include notes, bills, etc.

The bond market, itself, depends on its participants so it is very unpredictable. It is also dependent on the political and economic situation at any given time so the prices of mortgages may fluctuate; therefore, even in the short term, fixed mortgage rates’ unforeseeable interest rates makes it unpredictable.

There are some, however, that choose fixed mortgage because once the rate is locked in, it remains the same during one’s term. In this way, a fixed mortgage is more stable than a variable mortgage rate once an interest rate has been chosen.

What is a variable mortgage rate?
While a fixed mortgage rate remains constant during one’s term, a variable mortgage does not. A variable rate fluctuates based on the prime lending rate set by one’s lender. During one’s term, a variable mortgage rate will fluctuate when the lender’s rate does. If one’s lender is, for instance, the Bank of Canada, then they may give a rate of three percent and year later, it could go up to five percent and a year after that, the rate could easily drop by 0.75 percent.

Over time, variable mortgage rate has been proven to be less expensive than a fixed mortgage rate. With variable mortgage rate, there is significant financial uncertainty from payment to payment and this may cause a problem with lenders.

The reward with a variable mortgage is that the interest rate is typically lower than that of a fixed mortgage but because the rates increase and decrease without warning, one must consider the risk involved before committing to a variable mortgage rate. If, however, one is comfortable with this uncertainty then they may be saving may in the long term.

Conclusion
One will choose between fixed mortgage rates and variable mortgage rates based on his or her lifestyle and financial comfort. The decision should not be taken lightly because, after all, one’s future does depend on this choice. While a fixed mortgage rate is more dependable than a variable mortgage rate, it is also more expensive.

Mortgage Diligent Ltd. is the leading mortgage broker serving the Mississauga, Brampton, Toronto and the rest of the GTA. To find out more about which mortgage will suit you, contact Mortgage Diligent today.