Does your interest rate depend on your credit score? The simple answer is yes; there is a direct relationship between credit score and mortgage interest rate. The higher your score, the lower the interest rate you will usually get – and when you’re talking about a loan that is hundreds of thousands, if not millions, of dollars, a percentage or two makes a big difference.

Generally, a credit score of 760 or higher will give the borrower access to the best mortgage rates, as long as they have consistent income and meet the lending criteria, such as the mortgage stress test. A credit score between 650 and 759 will moderately impact the mortgage rates available to you, but you may still have access to all mortgage rates available on the market. This is especially true if you have other factors on your side, like a hefty down payment.

As your credit score drops, so does your access to better interest rates. While in the past, a score above 680 was the minimum credit score requirement, Canada Mortgage and Housing Corp. (CMHC) dropped the minimum credit score requirement from 680 to 600 as of July 5, 2021. While this is good news for those who may be rehabilitating their credit score or those just starting to build credit, it doesn’t guarantee they will have access to the best mortgage rates. In fact, with a score below 680, the borrower will see rates incrementally increase. Typically, borrowers with a credit score of 600 are considered “non-prime,” which means their mortgage rate would normally be about two percentage points higher than that of a “prime” borrower.

With a credit score of less than 600, it is almost impossible to get a mortgage from a bank in Canada. This is where B lenders and private mortgage lenders come into play. There are plenty of private mortgage lenders across the country with no minimum credit score requirement – this isn’t necessarily the best thing if you’re looking for a reasonable mortgage rate. Many private mortgage lenders will charge an interest rate substantially higher than the prime rate or even the non-prime rate that a bank will offer. These lenders may also tack on extra fees due to the borrower having poor credit, as it gives them a type of insurance in the event that a loan is defaulted on.

If you are thinking of buying a home soon, it’s a good idea to track your credit score and start working toward improving it, if necessary.

Does a Higher Credit Score Mean a Lower Interest Rate?

There is a direct relationship between your credit score and the mortgage interest rate you’ll be able to get. A higher credit score demonstrates responsible financial management, making you less risky in the eyes of lenders.

Here’s how different credit score ranges typically affect mortgage interest rates in Canada:

The difference between the interest rate offered to someone with an excellent score versus someone with a poor score can add up to tens of thousands of dollars over the lifetime of a mortgage. For example, on a $500,000 mortgage with a 25-year amortization, just a 1 percent difference in your rate could mean paying over $100,000 more in interest. This means that a modest improvement from a 600 credit score interest rate to a 700 credit score interest rate could save you significant money over time.

When you’re ready to buy, Call  ELIAS JIRYIS. real estate agent at (519)497-8731