As the saying goes, everyone likes to own a beautiful house. However owning a home is not always readily affordable for everyone. What about others, should they abandon their ‘dream’. Not necessarily, thanks to the mortgage industry.
People borrow money as a loan when they like to buy a house, purchase a car, pursue higher studies etc. or in an emergency. When they apply for a loan, banks or other lending organizations, known as creditors, seek an evidence of ownership of some property by the borrower. The borrower pledges the property to the creditor. If the borrower doesn’t repay the loan according to the agreement, the lender may take legal steps to acquire the borrower’s property. A qualified Calgary Mortgage Broker like Josh Tagg can help you understand how this works.
Steps involved in the mortgage process:
The prospective homeowner, who applies for a mortgage loan, approaches a mortgage processing company and fills up a form of request known as Mortgage Lead. A mortgage lead normally includes details such as Date of application, Personal information, Details of collateral property, Purpose and Amount of Loan required, affordable Down Payment, Applicant’s Annual Income and Credit Report. The mortgage processing firm sends the documentation to several lenders including banks, credit unions, and mortgage finance firms.
Whether the loan applicant seeks the lender directly or through a mortgage firm, chances of his obtaining a mortgage loan depend upon his Credit Profile or Credit Report. Credit Profile is a documentation that shows how promptly or otherwise, the person repaid any previous loans. The loan advancing organization makes a very careful assessment of the credit profile and verifies the borrower’s bank statement and deposits.
Most loan advancing organizations like this mortgage broker in Edmonton use FICO credit scores to assess the credit report. In the FICO system, there are 5 factors that are considered by lenders when assigning a credit score based on percentages, as shown below. They are: Borrower’s Payment History [Loan applicant’s punctuality in repaying any earlier loan/s] (35%), Credit on various accounts (30%), Length of Payment history [A measure of how long did the applicant take to clear any previous loan/s] (15%), Applicant’s existing credit accounts and how they are used (10%), and New Credit Percentage [Ratio of newly opened credit accounts to that of total number of credit accounts owned] (10%).
Borrower’s chances of obtaining a loan depend heavily on the data disclosed, particularly credit profile, as documented in the mortgage lead. If the borrower has a good credit profile, chances of his or her dream house coming true is greater. When going in for a mortgage loan, the most important question that the borrower needs to ask is Can I afford a mortgage loan. The affordability depends on the mortgage rate.
The mortgage rate is expressed as Annual Percentage Rate and includes the rates of interest and additional fees charged on the loan. All mortgage companies and lending firms are expected to disclose their APR in loan agreements, in accordance with The Federal `Truth in Lending Act’. APR is a convenient parameter to compare costs of loans or mortgage rates.
When if comes time to select the right mortgage terms that suit your needs the questions sometimes arises, Which is better, Fixed Rate or Variable Rate? First, let’s discuss the differences. A fixed rate would be the rate that your mortgage would be financed at for the length of the term you choose (see the link to 5-year terms for more info). A variable rate would fluctuate over that same length of term. It could go higher, it could go lower, depending upon the economy and markets. So taking a variable rate mortgage is basically a gamble that the economy and markets will not force a rise in interest rates during your mortgage term. Taking a fixed rate is like either gambling that rates will trend upward or else avoid the gamble all together and just be locking into a comfortable and manageable payment for the length of your term.
The interesting thing to note is that over recent decades of watching interest rates go up and down, most of the consumers who have opted for the variable rate mortgages have saved more money than those who have locked into fixed rate mortgages! This is pretty amazing although it is no guarantee that this will be true for the future. We still recommend that first time mortgagees take a fixed rate for simplicity purposes, but do recommend variable rates for those who are financially astute and actively manage their own money, investments, and debts.
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