Before You Get a Home Personal Mortgage, Understand how Credit Affects Mortgage Rates

Borrowing money against one’s home is easier said than done. Although it seems like all banks and financial institutions are willing to lend, getting a Mortgage approved can sometimes be pretty hard. Before approving your home equity Mortgage or second mortgage application, a lender in Toronto considers a number of factors. One of the determinants of your mortgage approval and mortgage rate is your “Credit Score”. The higher your credit score, the better mortgage rate you get. A second mortgage or home equity Mortgage applicant with a high credit score in Toronto poses less risk to the lender and therefore the lender offers low mortgage rates to them.

It does not matter whether you want to tap your home’s equity for debt consolidation, home renovations, foreign vacations, child’s higher studies, or for any other expenses; a lender would approve your Mortgage application and give you good interest rates only if you have a good credit score. A high credit rating indicates your ability to make timely Mortgage payments and repay the entire borrowed amount before the Mortgage term ends. If you have a bad credit history – high credit-card balances, several missed payments, bankruptcy, public liens, etc.; your chances of getting approved are slim. Even if you get approved, the mortgage rates you’ll have to pay would be pretty high.

A person’s credit score is calculated on the basis of the information on their credit report. A clean credit report shows that they have low balances and a history of timely payments. Hence, when it comes to approving a Mortgage application, lenders look at various variables on the applicant’s credit report, such as – their credit history length, outstanding debt compared with total available debt, number of inquiries on their report, etc. Errors on the credit report is one of the things that can artificially reduce your credit score and result in a higher mortgage rate. So, make sure that you thoroughly go through your credit report & fix errors, if any, before applying for a Mortgage.

Sometimes, a clean credit report makes lenders a little lenient in certain areas, where you may be weak, like – your current income, cash reserves, & down payment. On the other hand, an impaired credit history guarantees that they would adhere to all the requirements in these specific areas. For instance, if you have a great credit history and good enough score, some lenders would approve your Mortgage despite your weak employment history or income level which isn’t where it must be for Mortgage approval. But if your credit score is not good, your Mortgage application is most likely to be rejected. This is because the combination of high credit-risk and income weakness is a greater risk for the lender. So, if you want more flexibility from Toronto lenders on requirements, like – down payment, length of employment, etc; work on your credit rating before applying for a Mortgage.