The dream of securing mortgage loans at low interest rates is no stranger to those individuals who are contemplating buying property any time soon. Even for those of us already with a mortgage to pay, it is possible to get improved terms at least through a refinancing mortgage agreement, but for first-time buyers and property investors alike, starting off with the lowest possible rate is key.
The attraction of these low rates is one thing, but actually qualifying to get them is another. There are too many facets to an application to guarantee getting a mortgage approval at best rates possible, but there are certainly ways to improve the chances of getting one.
The fact is that mortgage loans are just like any other forms of financing in that once the basic criteria are met, then approval comes down to just a few factors. If these are in order, then rejection of an application becomes very hard indeed.
Factors Affecting the Rates
There are three basic factors that can affect the rate charged on any loan, with credit scores, source of income and debt-to-income ratio all playing a key role in setting the figure. Addressing these areas is the best way to secure a mortgage loan at low interest rates.
This is because each of these areas directly influence the level of confidence that the lender has in the ability of the borrower to meet the repayments. For example, a low credit score suggests a history of missing repayments, and offering an approval at best rates in that light is hard to defend as a wise course of action.
Meanwhile, establishing the source of income is important because part-time or contract work offers no long-term security, making repaying mortgage loans less likely to have a reliable pattern. Finally, the debt-to-income ratio is essential if the borrower is to avoid over-extending his or her debt.
Addressing the Factors
So, how can these factors be addressed? Well, when it comes to securing mortgage loans at low interest rates, there is a huge advantage in proving that an income is reliable. This can be done by getting confirmation from your employer and showing the pattern of income deposits in a bank account.
Improving a low credit score takes more effort, and more time. Taking out a series of small personal loans provides an opportunity to clear lingering debts, like a credit card debt for example. By repaying them on time, the score is improved theby making approval at best rates more likely.
The debt-to-income ratio is a little harder to improve. This is where the 40:60 ratio is applied by lenders, meaning that no more than 40% of available income can be considered for repayments. This protects the borrower against over-extending their debt, and the mortgage loan lender from losing their money. Lowering the existing monthly outgoings is the best option.
The Canadian Option
Of course, there are basic criteria to deal with first, with age, proof of income and citizenship the key ones. But there is more documentation that may be bought by lenders before mortgage loans at low interest rates can become a realistic possibility.
In Canada, for example, there are several mortgage plans available, including a variable rate mortgage dependent on other economic factors, and a fixed-rate loan where approval at best rates is viable because the repayments are steady at the same rate.
However, mortgages can also be tailor to suit the applicable, making mortgage loans in general more accessible than in other countries, like the US.