Not everyone who has the down payment set aside to buy a home has the credit to go and ask an “A” lender (a bank or other traditional mortgage source) for a loan. Some people are brand new in their careers and haven’t established enough credit to satisfy the banks yet. Others have gone through financial setbacks in their past and, while they have cleared debts off the books, are still waiting for their credit scores to move upward in response. Still, others are successful business owners — but the fact that they own their own business means that they don’t have the third-party verification of income, or the regular amount on monthly paychecks that is always the same, that mortgage processors like to see on applications.
This is why the subprime mortgage market exists — to serve people who can’t quite qualify for a home mortgage through traditional means. Subprime lenders do charge higher than the banks, because they serve a pool of borrowers that represent a higher degree of risk. However, the exact rate varies from one tier of lender to another, on the requested loan-to-value ratio of the deal in progress, and the credit history of the borrower.
So if you’re going after a subprime loan, then you know that you’re going to pay interest rates above what the banks are charging. Understanding that, you realize that different interest rate levels on various loans will control the amount of credit available to you. This tool helps potential borrowers evaluate their current situation and gain an idea of how much loan they can qualify for at different interest rate levels.
Calculator the Maximum Mortgage you can Borrow
When you’re calculating your monthly housing payment in Canada, you have to use the “PITH” number. This stands for Principal, Interest, Taxes and Heat (all part of the required calculations for a mortgage in Canada), and it also includes half of a condo fee, if applicable. The calculator takes your monthly income and multiplies it by 0.39. Your PITH each month has to be less than that. If you have other debts out, the calculator takes your monthly income and multiplies it by 0.5 and then subtracts your other loan payments. At that point, this number still has to be higher than your PITH number for you to qualify for the mortgage.
The good news is that you can take out a subprime mortgage of a fairly short term while amortizing your mortgage over the full 20-30 years. If your credit has improved by the renewal time, then you can take your loan down to the street to a traditional lender and take advantage of the savings that come with lower interest rates.
Try Our Maximum Mortgage(Prime A) Calculator – This is your total principal, interest, taxes, heat and 50% of your condo fee (PITH). Maximum monthly payment is calculated by taking the lower of these two calculations:
Monthly Income X 35% = monthly PITH
Monthly Income X 42% – Other loan payments = monthly PITH
Maximum Mortgage(Prime B – Semi-Traditional) Calculator – Use this calculator to determine your maximum mortgage with a non-traditional subprime lender and how different interest rates affect how much you can borrow.