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If you’re thinking of buying a home in Mississauga sometime soon, you’ll want to start getting your finances in order to help you secure a mortgage. Home loans are designed to help make it possible for Canadians to be able to purchase a home, despite the hefty price tag. Without mortgages, you’d have to come up with a lump sum of money to pay for a home in an all-cash transaction.
But there isn’t a one-size-fits-all mortgage out there for every consumer. Instead, mortgages available in Mississauga are varied, giving you plenty of options to choose from. Let’s go over the types of mortgages there are in Mississauga, what you need to get approved for one, and how to choose the right mortgage product for you.
Want to know how much it costs to buy a house in Ontario? Click here.
Types of Mortgages in Mississauga
There are several mortgage products available to consumers in Mississauga, including the following.
Conventional mortgages – In order to get approved for a conventional mortgage, you’ll need a minimum 20% down payment. This will not only reduce the amount of money that you have to the borrower, but it will help you avoid having to pay mortgage default insurance. This type of insurance policy protects the lender in case the borrower defaults on the mortgage.
High-ratio mortgages – If you’re unable to come up with a 20% down payment, you may be eligible for a high-ratio mortgage. These mortgages require a minimum down payment of 5% as well as mortgage default insurance.
Fixed-rate mortgages – These mortgages come with an interest rate that does not change throughout the loan term. Buyers who like to have predictable mortgage payments in order to stick to their budget may prefer these types of mortgages. Fixed-rate mortgages might also be ideal if rates are expected to increase in the near future.
Adjustable-rate mortgages – The interest rate associated with adjustable-rate mortgages will change at specific intervals. They could either increase or decrease, which is a risk that borrowers have to take. When the rate changes, the payments can also change, which makes them a little less predictable.
The rate is usually lower than fixed-rate mortgages during the introductory period. These types of mortgages might be better suited for those who intend to sell their home before the introductory period ends, or if rates are expected to stay low over the near future.
Click here to learn more about fixed vs. adjustable rate loans.
Second mortgages – Homeowners who have some equity built up in their homes may be eligible for a second mortgage, otherwise known as a ‘home equity loan’. A lump sum of money will be provided by the lender, and the homeowner is then responsible for repaying the loan in installments, plus interest.
Bridge loans – Canadians who have bad credit and want to take steps to repair it may opt for a bridge loan. These loans offer borrowers a short-term solution to improve their credit while using their home’s equity to cover whatever pressing expense they might have to cover.
Perks of Mortgage Pre-Approval in Mississauga
Before you start house hunting in Mississauga, you would be well-advised to get pre-approved for a mortgage first. A mortgage pre-approval letter can be beneficial to you in a few ways.
Find out how much you can afford. It’s helpful to know how much you can actually afford in a home purchase before you go shopping. Knowing what your maximum limit is will help you focus only on properties that match your budget and will determine the most you can offer on a home. This can help you avoid any disappointment and wasting any time.
Be more competitive. If you’re shopping for a home in a hot seller’s market, you need to do whatever you can to remain competitive. Getting pre-approved for a mortgage can help give you an edge over other buyers in Mississauga who may not be pre-approved, which can come in especially handy in a bidding war. In this case, sellers will typically only consider buyers who have shown some proof that they are serious and are financially capable of affording the home.
Get the final mortgage approval process moving along faster. Once an offer has been accepted, that’s when the actual mortgage approval process can start. But since you’ve already submitted much of your financial documentation to the lender, the process should be able to be completed much faster. Just make sure that you complete a purchase transaction before your pre-approval expires.
Should you spend your entire pre-approval amount when buying a home? Find out here.
Payment Options For Mortgages in Mississauga
In order to repay your mortgage in Mississauga, you’ll need to make regular installment payments. The frequency of these payments, however, can vary. The payment frequency will depend on what you’re most comfortable with as well as what the lender in Mississauga is able to offer you. Here are your options:
- Monthly – Make payments once a month.
- Semi-monthly – Make payments twice a month, with each payment amount being half of a monthly payment.
- Accelerated bi-weekly – Make payments every two weeks. With a total of 26 payments made by the end of the year, that means two extra payments will have been made compared to semi-monthly payments.
- Weekly – Make payments once a week.
Want to find out what happens when you miss a mortgage payment? Look here for the answer.
Understanding Mortgage Amortization Periods
The amortization period of a mortgage represents the amount of time that a borrower in Mississauga has to repay the entire loan amount in full. These can be either long-term or short-term, depending on what the borrower feels more comfortable with.
Long-term amortization periods. These are better suited for those who are unable to afford large payments every month. Longer amortization periods, therefore, make mortgages easier to manage. However, they cost more overall because more interest will be charged over the length of the loan. Further, longer amortization periods mean that mortgages will take longer to pay off.
Read this for a better understanding of how your amortization differs from your mortgage term.
Short-term amortization periods. These are better suited for those who can afford bigger monthly payments and like the idea of being able to pay down their mortgage sooner. They also come with less interest paid, making them more affordable overall.
Amortization periods are usually 10, 15, 20, or 25 years.
Check out this infographic to learn about how your credit score is calculated.
Credit Score Requirements in Mississauga
What credit score do you need to get approved for a mortgage Mississauga?
In Canada, credit scores range from 300 to 900. The closer you can get to 900, the better. A good credit score will boost the odds of you being able to secure a mortgage. It will also help you secure a lower interest rate, making your mortgage more affordable.
Bad credit scores make it more difficult for borrowers in Mississauga to get approved for a mortgage or any other type of loan. That’s because bad credit borrowers pose an increased risk for lenders. The odds of defaulting on a mortgage are typically higher with bad credit borrowers compared to those who have higher scores.
As a general rule of thumb, borrowers must have a credit score of at least 650 to 680 to get approved for a mortgage with a conventional lender.
Can You Secure a Mortgage With Bad Credit in Mississauga?
If you are unable to secure a mortgage with a traditional lender in Mississauga as a result of having a bad credit score, you may have better luck applying with an alternative lender. There are many private lenders in Mississauga who deal with bad credit borrowers.
Instead of placing a lot of weight on credit scores, these lenders will focus more on your income, assets, and your recent payment activity. They want to make sure that you have the finances available to repay the loan and are responsible enough to make payments, despite having a bad credit score.
You can also consider having someone co-sign the loan with you. This person must have a good credit score and must be willing to accept the responsibility of taking over mortgage payments if you default on the loan.
Otherwise, if you’re not in a rush to buy a home, consider taking some time to improve your credit score. You can do this in a number of ways, including:
- Making loan payments on time
- Not spending any more than 30% of your credit card limit
- Paying down your debts
- Making more than minimum credit card payments
- Not taking out any new loans any time soon
- Keeping old credit accounts open
Check out this infographic to find out how bad credit can affect your daily life.
How to Compare Mortgages
Comparing the terms of different mortgage products is important to make sure that you’re getting the best deal. When comparison shopping for a mortgage Mississauga, make sure you look at the following factors:
- Interest rate
- Payment frequency
- Amortization period
- Early repayment charges
You might want to hire a mortgage broker in Mississauga who will be able to do all the comparison shopping on your behalf so you don’t have to do the legwork yourself.
Not sure if you should work with a bank or a mortgage broker? Read this to know.
Tips to Save For a Down Payment
A down payment is a necessary part of the mortgage process. Different lenders and mortgage products will have their own minimum down payment requirements, so you’ll need to meet these requirements in order to secure a mortgage.
It’s also important to note that the more money you put down, the less you will have to borrow. And if you can come up with 20%, you won’t have to pay mortgage default insurance.
A down payment is a hefty sum. Here are some tips to help you save up for this money:
- Have your savings automated
- Dedicate a separate account for your down payment savings
- Take advantage of the Home Buyer’s Plan by borrowing against your RRSPs
- Borrow from family
- Pay off your high-interest debt to free up money for your down payment
- Consider consolidating your debt
Looking to conquer your high-interest debt this year? This article can help you.
Need a Mortgage in Mississauga?
Buying a home is a big deal, as is securing a mortgage. It’s a serious financial commitment, so you’ll want to make sure you do your due diligence and choose a mortgage that is the most affordable and meets your particular financial needs. Loans Canada can match you with a mortgage professional who can help you find the right product for your needs.
Note: Loans Canada does not arrange, underwrite or broker mortgages. We are a simple referral service.