Two factors determine how much interest you’ll pay on your Thunder Bay mortgage loan: the size of the mortgage loan and the interest rate. That’s why it’s important to shop around for the best mortgage rates in Thunder Bay before you close the deal on your purchase.
Mortgage interest rates in Thunder Bay (and across Canada) are influenced by a number of different factors. Each factor represents an area of risk to your lender if they choose to approve you for a home loan. Lenders like safe bets, so they favor borrowers with lower risk profiles. This translates to lower average mortgage rates for your Thunder Bay property.
On the other hand, if some of the factors below indicate a greater risk that you could default on your mortgage, your Thunder Bay home mortgage rates could be higher than average.
Here are the factors that impact your interest rate:
Down payment: Homebuyers who put down at least 20% of their property’s purchase price typically earn lower mortgage rates from lenders. Lenders tend to see homebuyers with larger down payments as less risky than high-ratio borrowers. For this reason, your house mortgage rates in Thunder Bay may be lower with a more sizable down payment.
The federal government has additional rules about the required size of your down payment based on the cost of your home:
- For a home costing $500,000 or less, the down payment must be at least 5% of the sale price.
- For a home costing $500,000 to $999,999, the down payment must be at least 5% of the first $500,000 of the sale price, and 10% for the share of the sale price above $500,000.
- For a home costing $1 million or more, the down payment must be at least 20% of the purchase price.
If your down payment is less than 20% of your home’s purchase price, you’ll need to budget for mortgage insurance from the CMHC, Sagen or Canada Guaranty. The premium can be paid in one lump sum when you close on your home, or it can be added to your monthly mortgage payments.
Debt service ratio: Mortgage companies in Thunder Bay want to know how your income compares to your debt levels when evaluating whether to lend you money for a home purchase and what interest rates to offer you. The following figures aim to paint a portrait of your debt obligations related to your income.
Gross debt service ratio (GDS): This figure compares your income to your housing costs. These costs include your mortgage payment, property taxes, heating bills and 50% of your condo fees (if your home is a condo). According to CMHC guidelines, you should be spending 39% or less of your income on housing.
Total debt service ratio (TDS): This figure includes all of the costs from the GDS ratio plus other debt obligations like credit card balances, auto loans, personal loans and student debt. Lenders feel most comfortable with borrowers who spend 44% or less of their income on these debt repayments.
Credit score: Your credit score is a major factor in your Thunder Bay mortgage rates because it provides a report card for how you’ve handled debt in the past. Do you have a track record of timely repayment? Or have you defaulted on credit card balances and your car loan? Your credit history also tells borrowers whether you use credit responsibly by limiting how much of your available credit you use and how often you open new accounts. Your credit score is expressed as a number from 300 to 900, with higher scores reflecting better use of credit. To qualify for CMHC mortgage insurance you’ll need a minimum credit score of 680. This is required if your down payment is less than 20% of your home’s purchase price.
Income and employment: Lenders will evaluate all your regular income sources, including paycheques earned from a salaried job, investment income rental income. In addition to asking about your income, lenders will ask about your type of employment (a permanent salaried job, part-time work, seasonal work, self-employment, etc.) If you are self-employed, you’ll need to provide extra documents including your business’s articles of incorporation, three years of tax returns, your GST license, balance sheet, cash flow statement and more.
Confident that you’re a well-qualified borrower? When you’re ready to compare mortgage rates in Thunder Bay, just let us know whether you’re buying a home, renewing or refinancing and click the “Get Started” button at the top of the page.