Credit Score Basics You Should Know Before Getting A Mortgage

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Credit scores are some of the most critical variables when applying for a mortgage. They accurately provide a picture of the creditworthiness of an individual. This can be used to determine factors including the upper limit that one can borrow as well as mortgage terms including the interest rate. Of course, many other factors also come into play, including the state of the current housing market. That said, it’s important to know all about credit scores and how they can affect your mortgage, as well as how you can optimize them to get the best loan terms possible. Some of these include:

There are multiple ways to assess your creditworthiness 

In order to compile your credit rating, there are more than one credit bureaus that can be consulted. these include TransUnion, Equifax and Experian. When looking to apply for a mortgage and want to check your credit score as part of your preparation, you need to check the score that each of these bureaus have. Not all mortgage lenders will depend on credit score data from one particular lender. Doing this will give you the most accurate position of your credit standing.

Checking your credit score is easy

Most people have the impression that checking a credit score is a highly technical procedure that requires professional help. However, as long as you have an internet connection, you can visit any of the credit rating bureaus, and then go through their details on how to check your credit score. Some regions make it a policy that every credit bureau should provide one free credit report to an individual per annum. In other areas, you may have to pay a small fee to do so. The fee is usually minimal, and most people can afford it. Depending on the bureau you check from, you can have the results instantly, usually via email.

Credit details are continually changing 

There are many things that affect your credit rating, including how promptly you service your loans. You should not depend on very old data as part of the process of planning for application for a mortgage in Montreal. You should always go for the most recent data, which can be gotten in a few minutes online. Good credit scores can be used as part of negotiations for better interest rates and other mortgage features.

Credit scores are analyzed in bands 

credit score

Credit scores are usually not analyzed as single numbers, but in ranges. For instance, according to the FICO scoring model, a rating of more than 800 is considered as exceptional, while a score of 740 to 799 is very good. Once you get your credit rating, you should find out where in the range it falls. This provides better interpretation of the score.

Whether you want to apply for a mortgage in Montreal or simply want to find out what your credit score is, these are some of the things you should know beforehand especially if you have never checked your scores before.

The Interplay Between Inflation And Mortgages

A mortgage is a long-term commitment. For this reason, you should always aim to get a mortgage that suits your status; it should not make you strain financially or be unsustainable. Finding a mortgage favorable to you involves issues including having a good credit rating. It is also important to understand how external factors will affect your mortgage. This can be used to make decisions including what type of mortgage to get and when to apply for the mortgage.  One that is poorly understood by many is inflation.

What does inflation mean?

Inflation is a word that is thrown around regularly, and is used as one of the markers of a country’s economic status. In most economies, the prices of goods and services within the country slowly rises. The rate at which this happens is referred to as inflation, and the current rate in the country is around 1.5%. inflation is usually measured on a monthly basis, but having annual inflation data is a better way of understanding the health of the economy.

Inflation can be measured in many ways, the most common of which are Retail Prices Index and Consumer Prices Index (CPI). For a particular type of goods or services, a CPI of 2% would mean that the average price for these would have risen by 2% compared to the previous year. Many mortgage lenders in Montreal will use inflation as one of the variables used in setting the mortgage rate for clients.

How it affects your mortgage 

Inflation has an increasingly significant impact on business decisions, including mortgages. Banks tend to take measures to stabilize inflation, and this is usually by controlling interest rates. For instance, if it is expected that inflation will rise by 1.5% in the next year, the country’s Central Bank could decide to increase interest rates by the same amount in order to counter the expected rise. The increased cost is passed on to customers. In this scenario, you will end up having to pay more interest for your mortgage. The opposite can also occur.

The issue of variable interest rates 

In some cases, it is a good idea to get a mortgage with a variable interest rate. These have an interest rate that changes according to a predetermined time frame. In determination of the new interest rate, the lender will often consider inflation as a major factor influencing this rate. The downside is that if the economy is doing badly over an extended period, interest rates could keep rising, making servicing the loan more demanding.

What you can do about it 

As an individual, there is little you can do to influence inflation. However, you can use your knowledge of it to ensure that you end up with a sustainable mortgage. For instance, if it becomes apparent that the interest rates might go up for an extended period of time, you could refinance your mortgage and get a fixed rate mortgage. This will set your interest rate at the current rates, and this will not be affected by future runaway inflation if it occurs.

Categories: Mortgage loans

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