Before choosing a mortgage, it’s important to look around for the best possible mortgage rate, term, and fees. A mortgage will most likely be the biggest loan you take on in your life, which will require you to make payments for several years. Check out our list of top mortgage lenders and reach out to multiple lenders to compare costs.
Customizable interest rates and terms
With more than eight decades in the industry, Coast Capital ensures you have access to the best rates. You can also apply for a pre-approval so you can plan ahead and get help where needed from Coast Capital’s team of experts.
What we like
- No hidden fees
- Flexibility in mortgage requirements
- Bonus offers available
- Reverse and construction mortgages available
- Personable customer support team
What we don't
- Only for a primary residence
Digital lender with competitive rates
Unlike traditional banking, Tangerine offers all of its services on an online digital platform to its lenders. You can begin your mortgage application online and keep track of your loan status, all from the comfort of your home.
What we like
- Hold and secure a rate up to 120 days
- Penalty-free portable mortgage
- Lump sum prepayment options
- Completely online platform
- Tangerine Prime benefits available
What we don't
- Lacks physical offices
- Only one variable rate option
What are the requirements for a mortgage?
Home sellers require a pre-approval letter from buyers indicating their willingness to buy a home. A pre-approval letter confirms that your lender has checked all the requirements and verified your application for approval of a certain loan amount. A lender requires the following items to pre-approve your mortgage:
- Proof of income: Most lenders require W-2 wage statements for the past 24 months that show your year-to-date income and tax returns.
- Proof of assets: You need to obtain bank statements for your chequing, savings, and investment accounts. This guides lenders in determining if you have funds for the downpayment, origination fee, and other related costs.
- Good credit: Credit scores vary depending on the type of loan and lender. Generally, a credit score of 600+ is required for conventional loans. Borrowers with good credit scores enjoy lower interest rates whereas low credit scores tend to get higher rates.
- Employment verification: Most lenders give consideration to borrowers with stable employment and will contact your employer to verify your status and salary. Self-employed borrowers will need to provide additional paperwork in regards to their business and proof of their income stability.
These items vary in terms of minimum or maximum depending on the lender and type of mortgage.
How does the mortgage process work?
A mortgage is a loan for real estate purchases when buyers are unable to make a full purchase upfront. Instead, a mortgage allows you to make payments to finance your home. However, obtaining a mortgage can sometimes be tedious for first-timers. To familiarize yourself with the process, we have described some important terms below:
- Pre-qualification: The lender evaluates your ability to qualify for the mortgage and helps the lender to determine the borrower’s loan limit and terms.
- Co-borrower: If you do not qualify for a loan due to low credit or poor financial history, you may need a co-borrower with a good credit history and debt to income (DTI) to improve your chances. Both the borrower and co-borrower are obligated to pay off the mortgage loan, and the names of both individuals appear on the title of the property.
- Interest rates: This refers to the amount a lender charges on the mortgage loan. This amount is often expressed as a percentage of the principal amount. Interest rates are noted annually and termed as annual percentage rate (APR).
- Origination fee: Borrowers are sometimes required to pay a fee to process their loan application based on a percentage of the loan.
- Fixed-rate mortgage: Fixed-rate mortgage loans have a specific interest rate for the entire term of the loan. For instance, if you have a mortgage plan of three years with a 5% interest rate, the 5% will apply for the full three years. Fixed-rate mortgages are usually up to five years, depending on your provider and terms, and have amortization periods of 25 – 30 years.
- Adjustable-rate mortgage: Also known as a “variable-rate,” this type of mortgage will have a fixed rate for the first few years and change to a fluctuating rate based on market dynamics. For instance, if you have a 5/1 ARM, you will pay a fixed rate for the first 5 years (indicated by “5”), and your rate will adjust annually (indicated by “1”) until the loan is paid off. Some mortgage providers have a rate cap that limits the monthly payments from exceeding specific amounts.
What are the types of mortgages?
There are various types of mortgages, which vary based on their terms and requirements. They include:
In a conventional mortgage, the downpayment is 20% or more of the purchase value. Most lenders don’t require insurance with conventional mortgages.
With an open mortgage, you can pay off large payments or the full debt without any penalties. These may last from six to twelve months.
A closed mortgage has a fixed, pre-determined interest rate for a certain period of time. The interest rate is generally lower than that of an open mortgage. You usually pay a lump sum of 10 – 20% of the original mortgage amount every year.
A reverse mortgage allows you to transfer up to 55% of your home equity into cash payments without selling your home. This mortgage is only eligible for individuals older than 55. The loan is due when the homeowner moves out, sells the house, or dies.
A convertible mortgage lets you change the mortgage type at any time without any charges. You are offered a fixed rate for a specific term and given the option to increase your interest or principal amount during the term. In case the interest rates drop, or you want to switch to a fixed rate, a convertible mortgage is the right choice.
What are the costs of a mortgage?
Most lenders recommend that your monthly mortgage payment should be below 30% of your gross income. Also, you need to ensure your total DTI is less than 36%. Lenders consider many factors when determining your mortgage costs, including:
- Down payment: You need to pay a certain percentage for the house you are buying. If your down payment is 20% on a $1M house, you will have to pay 20% in equity while the 80% will be financed through a mortgage.
- Closing costs: These costs include a lender origination fee, courier fees, escrow deposit & withdrawal fees, applications fees, inspection fees, title insurance, attorney fees, homeowners association fees, and application fees. The average closing costs range between 2% to 5%.
- Mortgage points: They can also be referred to as discount points. Borrowers who want to lower their interest rate can pay this fee to the lender. Every 1 point is 1% of the loan amount that you’ll need to pay. Each point reduces your interest by 0.25%. If you have an adjustable-rate mortgage, the points apply only to the initial rate. For fixed-rate mortgages, the points apply to the entire loan term.
- Prepayment penalties: Some lenders charge a prepayment penalty when borrowers pay off their mortgage earlier than the term limit.
- Mortgage insurance: You’ll need a private insurance mortgage if your down payment is below 20%. Borrowers with conventional loans can avoid purchasing a PMI by paying a minimum down payment of 20%.
- Monthly mortgage payment: You need to make your monthly payments to offset your loan. The monthly payments include:
- Principal: Refers to the total loan amount you borrowed. The principal reduces monthly.
- Interest: Interest rates can be fixed or adjustable depending on your loan terms.
Interest rates are determined based on the borrower’s risk. Lenders consider your crest history, loan term, home value, down payment, interest type, and property type to determine your rate.
How to choose the best mortgage lender?
Some lenders provide mortgage financial experts that will advise you on the best loan type and amount based on your credit score and needs. Consider the following to get the best mortgage:
- Loan type: Government-backed loans have lower interest rates, lower down payment requirements, and credit scores compared to conventional loans.
- Loan term: Your loan term determines your monthly payments. If you want to pay a lower monthly amount, you’ll need to select a longer-term loan. However, interest rates on longer-term mortgages are higher compared to shorter-term mortgages, so you’ll pay less monthly but more interest over the life of the loan.
- Interest rates: If you feel confident that interest rates will remain low for a while, an ARM will be a better option than a fixed-rate loan.
- Closing costs: Even though a lender offers the lowest interest rates, you’ll have to take into consideration of other costs, such as closing costs, if it’s worth going with that lender. That’s why it’s important to get quotes from multiple lenders.