There’s a lot of horror stories about mortgages you can read online, so I wouldn’t be surprised if you’re a first-time home buyer who’s intimidated by the idea of it. I’ve met countless home buyers who learned about mortgages only when they consulted with me. Eventually, they learned that the right mortgage is their tool towards their greatest investment – their new home.
Finding the Best Mortgage
Whether you’re talking to your mortgage broker or lender, it’s important to keep asking until you’ve fully understood and fully resolved the commitment you’re about to make.
Always ask questions before you commit to a life-changing financial decision. Here are some conversations and questions from my clients in their journey towards finding the right mortgage.
1. What types of mortgages are available for me?
This depends on how long you see yourself in your home, your financial situation and your financial projections, among many others. You’ll need to gather enough information before a particular type of loan can be recommended to you.
We can start by discussing open and closed mortgages. Open mortgages allow you to allocate extra funds for your mortgage, apart from your regular payments. You can also pay it off even before your term ends. Closed mortgages are commitments with specific terms. This means that the mortgage can’t be paid off, refinanced nor renegotiated before the term ends. Otherwise, you’ll have to pay penalties and other charges. The main difference between the two lies in their interest rates and flexibility.
2. How does interest factor into my loan?
Mortgage lenders earn from interest rates paid by the borrower. So if you have higher interest rates, your mortgage payments will increase as well. Whenever you renew your mortgage, you’ll also have the opportunity to renegotiate your interest rates.
Research and compare mortgage rates in the local housing market with the help of a mortgage broker. Once you know the rate your lender is willing to loan you, have it documented or better yet, get pre-approved for a mortgage.
3. How much down payment should I pay? And what if I can’t make it?
The industry standard for a down payment is 20%. But there are already mortgages that allow you to pay as low as 5% of the total home value. The minimum down payment in Canada depends on the actual purchase price of the property.
The principle is: if you want to lessen your monthly mortgage payments, pay a bigger down payment.
If your down payment is less than 20%, you’re required to get mortgage insurance from Sagen (formerly known as Genworth) or from Canada Mortgage and Housing Corporation (CMHC). The insurer will charge a fee depending on the amount you’re borrowing and the percentage of down payment you’ve tendered.
4. How can I manage the risk in my mortgage?
Many believe that mortgages are inherently risky. In fact, a risky mortgage is a loan that doesn’t fit the ability and situation of the homebuyer.
If you’re the type of buyer who needs to know exactly how much monthly mortgage payments you need to make, a fixed-rate is a good choice, but it also entails higher interest rates. Some are willing to make varying monthly payments at lower interest rates. If you’re willing to risk fluctuating interest rates, opt for a variable rate mortgage.
Get help from a mortgage broker to help you compare mortgage rates in your local market.
5. How can I adapt my mortgage with my future plans?
The length of time you plan to stay in your home will also determine which home loan you should apply for. If you’re planning to stay in your new home for not more than five (5) years, consider a variable rate loan. If you see yourself staying in your home for decades, then go for a fixed-rate mortgage.
Your plans will also affect your mortgage term. A mortgage term is the length of time your mortgage contract is in effect. A short-term mortgage can range for two years or less. This is ideal for homebuyers who believe that interest rates will drop just in time for renewal. On the other hand, a long-term mortgage takes three years or more. This is more suitable for borrowers who find current mortgage rates reasonable and want a constant figure for better budgeting in the future.
Make the Wisest Decision: Ask Daisy.
When deciding on a mortgage, you’ll be bombarded with different mortgage options. Being able to filter them and decide which best serve your needs can be tedious and stressful. The best way to find the right mortgage is by seeking help from a mortgage broker.