Real Estate 101- Mortgage Rates

Real Estate Agent with RE/MAX Realty Specialists

During most of 2010, mortgage interest rates in Canada were and to this date in 2011 have remained most favorable.  It now appears 2011 sales volume will be strong.

However, no one can guarantee where rates will go over the next month or the next several months, and if you asked 50 experts you’d probably get 55 estimates!


How does all the above affect the potential home buyer?  With home sales booming and interest rates bottoming, it’s absolutely essential  to get a pre-approved mortgage if you plan to buy a home this Spring or Summer.  The reasons are many.

A pre-approval is a confirmation in writing, in advance of a purchase, of the maximum amount of money a lender will give you for a mortgage.  


It also will guarantee for you the maximum rate of interest you will pay.  Therefore, when you put in an offer on a property both you and the current owner will be confident that a mortgage will be arranged.


And should there be competing offers on the same property, the owner may be more favorable to your offer as bank financing is virtually assured.



Applying for a pre-approval is basically the same as applying for a mortgage.  The lender will more than likely require verification of your prior income (perhaps your last two tax returns), your present income (one or two recent pay stubs), information on your current loan payments, request a credit check, and several other personal items.  


Should the above meet the lender’s guidelines you will receive an approval for a specific amount of  mortgage for a specific time period (often up to 120 days).


Having this pre-approval puts you in a most favorable negotiating position and it also guarantees you that if the rates drop you’ll get that lower rate.



Most importantly, it ensures you will get the rate at which you were approved no matter how much the rates go up in the meantime.  For example, if you are pre-approved for $200,000 at 5 percent for 120 days and, in that time frame, mortgage rates go up a percentage or two, you will be guaranteed that the maximum rate you will pay is 5 percent.


Additionally, most lenders will give you an even lower rate should interest rates go down even further.  With a pre-approval you can’t lose!


The pre-approval gives you three or four months to shop for a home without the pressure to purchase that rate increases can cause.



Also, working on the mortgage details before you buy allows you more time to get advice on the various types of mortgages and payment options available.  


Being familiar with ‘closed or open’ mortgages, payment schedules and amortization terms lets you decide and choose which best suits your lifestyle.  


You’ll probably have your mortgage for a long period of time and getting a pre-approval will help ensure it’s the best one for you. 



Start putting together today the documentation you’ll need to apply because ensuring a good financial plan is one of the most important steps in the home buying process.

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Remember, the more you know about factors affecting real estate transactions, the wiser your purchase or sale will be!

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