Money makes the world go round and a mortgage gives you the power to buy a home. This isn’t the most fun step in buying a home, but it’s vital.
WHO TO CONTACT?
Banks, credit unions and other lenders
Ask people you know.
REALTORS® are very knowledgeable about mortgages and have lots of good advice.
Mortgage brokers are another great resource. They find low rates for a living and they usually don’t get paid unless you sign a mortgage through them, so they’re highly motivated to get you the best deal
Your best mortgage might be the seller’s mortgage.
You can sometimes take over or ‘assume’ the seller’s mortgage. This is a great idea if the seller is locked into a lower interest rate than you can get right now. Your REALTOR® can help you.
- Mortgage term – Typically from six months to five years, the ‘term’ refers to how long the bank has agreed to lend you the money. At the end of the term, you usually renegotiate a new term.
- Amortization – The length of time it will take you to pay off the whole mortgage. Often as long as 25 years, if you don’t accelerate your payments. The longer your amortization, the lower your monthly payments, but the more you pay in interest over time.
- Interest rates – Interest is the cost of borrowing money and the interest rate tells you exactly how much. Using this mortgage calculator, check the difference between borrowing $100 000 at 6% and at 9% at the same amortization. Surprising, no? That interest rate not only affects how much you pay, it also affects how much you can borrow. So remember to keep searching for the best rate!
How big a down payment should you put down?
You want as small a mortgage as possible, which means making the biggest down payment possible. Just remember to set money aside for all the fees associated with buying a home. Not to mention moving, repairs, renovations, new furniture. Think ahead.
The RRSP Home Buyer’s Plan
If you’re a first-time home buyer with money in an RRSP, you can withdraw up to $25,000 (Effective January 27, 2009 the withdrawal maximum increased to $25,000 from $20,000) without paying any income tax. If your spouse is also eligible, that’s $50,000. Ask your REALTOR® how to best take advantage of this plan.
Lock into an interest rate. But, for how long?
It’s a tough question. What if you ‘lock in’ for five years and rates go into a period of decline? That could mean you’re stuck paying more than you had to for a long time. But if rates were to steadily climb over the next five years, locking in for five years now would be a great move. For many, a long term mortgage offers peace of mind in knowing that their mortgage payments will stay the same for several years. Your REALTOR® will have a lot of good advice.
What you need to apply for a mortgage/Things to consider:
- Letter of employment confirmation – Ask your employer for a letter that confirms your position, your pay and how many years you’ve been with the company.
- List your assets – Your car, stocks, bonds, GICs. Show which assets will be used for your down payment.
- List your liabilities – Car payments, student loans, credit card debt. List all the money you owe and note how you’re paying it off.
- Social Insurance Number – And your chequing account number, and your lawyer’s contact information
- Information about the house you want to buy – The home is your security on the mortgage, so the lender wants to know all about it. Don’t forget these extra costs. Face your new financial responsibilities head-on, and you may even dodge some of them. And then won’t you look smart!
- Application fee- Some mortgage lenders charge a fee to process your application. Many lenders will agree to waive this fee, so make sure you ask!
- Appraisal fee- Your mortgage lender may need to have your new home appraised by a professional and they often pass the bill on to you. Sometimes your lender will also waive this fee. Again, it doesn’t hurt to ask.
- Mortgage broker’s fee – In most cases, the lending institution pays the broker’s fees. Occasionally, your mortgage broker will charge a fee that is payable on your closing date. Your broker should tell you if there is a fee for their services.
- Home inspection fee – A home inspection is so important, we devoted an entire Step to it. Avoid surprises and protect yourself… this is money well spent.
- Home Insurance – Mortgage lenders require you carry fire and extended-coverage insurance because your home is the security deposit on the mortgage. Often you can have these payments added to your monthly mortgage payments. Shop around.
- Title insurance – Not mandatory, but it protects you from all sorts of fraud and potential errors surrounding the title to your land. It’s normally a few hundred dollars. Ask your lawyer for details.
- Legal fees – Your lawyer is vital to the home-buying process. You’ll pay legal fees for their time and “disbursements” which are the costs involved in title searches, drawing up the title deed and preparing your mortgage.
- Adjustments – The previous owner may have paid property tax or utilities in advance and they want to be credited for those payments. Ask your REALTOR® and lawyer what might come up on the closing date.
- Maintenance and utility costs – Just a reminder, you now have more regular monthly payments in the form of property tax, utilities. Maybe some repairs are on the horizon.
- Land Transfer Tax – Ask your REALTOR® or lawyer to calculate the payment.