The decision to purchase your home is one of the most important financial choices you will make in your lifetime. As such, it is imperative that if you do decide to finance your home purchase, you choose the right mortgage solution that best serves your needs. Yet even as you make your commitment to make responsible financial decisions in support of your new home purchase, the landscape surrounding mortgages is often muddied, at best. In short, what you need is clear, concise, and relevant information that can help you make the right decision regarding a mortgage for your new home purchase.
Down Payment – Standards and Best Practices
One of the most important steps you can take to owning your own home is to make the down payment on the house. In fact, it is Canadian law that you must provide your own funds up front in order to qualify for a mortgage. Often, a person or family can qualify for a mortgage with just 5 percent of the purchase price provided in cash, but it is a best practice to have a down payment of 20 percent of your new home’s purchase price. If your down payment is less than 20 percent, you will need to take out mortgage loan insurance, which will add to your overall monthly costs.
There are a few specific ways for Canadians to save for their down payment. The first option is to borrow money from your Registered Retirement Savings Plan, or RRSP. Canadian law allows you to borrow up to $25,000 from your RRSP if you are a first time home buyer. If you are purchasing the home with a spouse, then he or she can also borrow up to $25,000 from their RRSP, bringing the family total borrowed to $50,000. Of course, whenever you engage in a strategy such as this, it may make sense to consult with a tax accountant, to ensure that you are maximizing your ability to make a sound financial decision.
A second option is to invest some money in mutual funds. You could put your money in an automatic investment and savings plan, that then goes into a mutual fund. This method is particularly beneficial when you don’t need to move into your new home for at least three years.
A third option is to place money in fixed rate investments such as Guaranteed Investment Contracts (GIC) or bonds. While the interest rates are low, you can generally lock in a positive rate of return. A fourth option is to invest in Canada Savings Bonds, or CSB. These bonds have a low rate of return, but they are backed by the full strength of the Canadian government.
A fifth option worth considering is to invest in high interest savings accounts. When you combine such accounts with the aforementioned automatic savings plans, you can ensure that when the timing is right, you will have the funds you need to make a sufficient down payment for your new home. And as you can see, there are a variety of professional mortgage solutions that will ensure that you are able to put an appropriate down payment on your desired home.
What It Takes To Get Preapproved For A Mortgage
When you are preapproved for a mortgage, the lender has made an actual commitment to you that they will loan you money for the mortgage. This is different from pre-qualifying for a mortgage, which means only that a lender will give you a reasonable idea of how much you could borrow.
There are many advantages to getting preapproved for a mortgage. For example, you will save time by only looking at homes that you can truly afford. You will have more commitment from real estate agents that know you are serious about buying. Your status as a preapproved buyer gives you more negotiating power with a home seller. There is no additional cost to you, and you have no obligation to accept the mortgage. And, you will be able to better manage your money, with the understanding of your monthly payments and the needed size of your down payment.
When a lender is considering you for preapproval of a mortgage loan, they will consider a number of factors, including your income, the length of time that you have been at your present job, as well as your total assets. Be sure to disclose any and all information, including that which you think could be problematic for you. This honesty will ultimately help you in your preapproval process.
You should bring in all relevant verifiable information, and be sure to ask your broker to pull up your credit history. If you don’t have any credit history, then you should begin building credit, perhaps with an RRSP. Finally, you should avoid large scale purchases that could cause a financial burden to you, and you should do what you can to avoid job changes. You should also avoid seeking new debt if you want to ensure your preapproved status.
The Importance of Your Credit History In Obtaining Your Mortgage
Your credit history is very important to determining the type of mortgage you receive, along with the rates that will be offered to you. The better your credit score, the lower the interest rate that will be offered to you. In fact, a high credit score could conceivably save you upwards of thousands of dollars. And no credit could also be a burden. In essence, you need to prove to your lenders that you are a low risk decision for them to lend to you.
You should realize that your credit report includes personal information along with records of all credit cards, lines of credit, other loans, and bankruptcies. Therefore, maintaining excellent credit is an important task if you are serious about getting a low rate on your mortgage.
There are a number of actions that you can take to raise your credit score, and keep it high if it is already high. First and foremost, you need to make your payments on time. Missed or late payments will reflect negatively on your credit score. Additionally, you should keep your total balance much lower than the credit that is available to you. You should avoid making too many credit applications, as this will lower your score. And be sure to pay off your debts as quickly as possible. A good credit score could mean lower rates on your mortgage, and a much smoother process when seeking that low rate.
The Importance of a Mortgage Broker To Serve Your Needs
A mortgage broker can make your experience with attaining a mortgage a very pleasant one. The world of mortgages can be complicated and challenging, and a mortgage broker can clear the way, and make easy any decisions that would otherwise be difficult to understand or comprehend.
First and foremost, mortgage brokers, provide their services to borrowers for free. While it is true that they earn a commission from the lending institution, they can make your experience a favorable one, with no actual cost to you.
Second, a mortgage broker can assist an individual with a lower credit score to attain the loan that they need for their home. They will handle the paperwork, as well as the communication with the lending institution, saving you considerable time and headache when evaluating the appropriate residential mortgage solutions.
And importantly, a mortgage broker can save you money. A study by the Canadian Association of Accredited Mortgage Professionals (CAAMP) showed that individuals that renewed their mortgage with a mortgage broker reported a rate decrease of 1.4 percent, compared with a rate decrease of 1.0 percent for those without a mortgage broker.
The Difference Between Fixed and Variable Mortgage Rates
As you go along on your journey of selecting the appropriate mortgage that will best serve you and your family, you will undoubtedly hear about both fixed and variable mortgage rates. You will likely engage in conversations with individuals who will presuppose that you are literate in the world of mortgage lingo, and that you understand the difference between these two types of mortgages. Therefore, it is important that you know the difference between fixed and variable mortgage rates.
With a fixed mortgage rate, you lock in your rate for a preset period of time. The most common term is 5 years in Canada. You may want to choose a fixed rate if you are seeking the comfort and security of knowing that your mortgage rate will never change, meaning that you will know what your monthly rates will be for the entire duration of the term.
Given the stability of a fixed mortgage rate, why would people want a variable rate? First of all, a variable interest rate differs from a fixed mortgage rate in that the rate is subject to fluctuations and change based on the moves of the prime rate. The prime rate is the rate used by major banks as a benchmark when pricing loans. So why would people want a variable rate?
The exciting part about a variable rate is that you can often achieve lower rates. Mortgage lenders will typically offer higher rates for the fixed rate, whereas the variable rate is pegged to the prime rate. You will not know whether you are going to save more money with a fixed or variable interest rate, but historically, Canadians have saved more money with variable interest rates .
Ultimately, the difference between variable and fixed rate mortgages has to do with your tolerance for risk. If you are okay with the cost of your monthly mortgage payment fluctuating with the movement of the market, then you should consider a variable interest rate. You may end up saving money. But on the other hand, you must also factor in the possibility that the prime rate could raise dramatically, raising your interest rate and monthly mortgage payment along with it.
The Difference Between Closed and Open Mortgage Rates
While the difference between fixed and variable mortgage rates is now clear, there is another distinction that you must be aware of – the difference between open and closed mortgage rates. An open mortgage rate gives you the option to pay off your mortgage in full prior to the end date of the mortgage, without any prepayment charges. As a result of the possibility for early repayment, however, rates are generally higher than closed rates.
On the other hand, a closed mortgage rate does not give you the option of paying off your mortgage early. As a result, you will generally find a lower interest rate than you would find for an open mortgage. Therefore, you may actually end up paying your mortgage off more quickly due to its lower rate.
It is possible to have open and closed fixed mortgages, and open and closed variable mortgages. As you are beginning to see, finding the right finance and mortgage solutions can be rather tedious and difficult. It is for this reason that a professional mortgage broker can be a highly intelligent decision for your mortgage needs.
Subprime Loans – The Difference Between Canada and the States
While it is true that Canada’s real estate market was hurt by the challenging real estate market just south in the United States, Canada’s market did not suffer nearly as much as their friendly neighbors in the States. The reason for this is that subprime loans in the United States were bundled and sold to investors that did not appropriately understand the risk. In Canada, on the other hand, mortgages are established with financial institutions that seek to create and maintain long-term relationships with home buyers.
In Canada, banks have a deeper relationship with borrowers than in the United States. Canadian bank will offer not only mortgages but also credit cards, car loans, and opportunities for investment. Thus, there is a distinct interest for Canadian banks not to have their customers take on too much debt that could end up in default or bankruptcy. Therefore, the best mortgage solutions in Canada frequently provide greater safety both for the banks and for the borrowers, than in the United States.
Complete Mortgage Solutions For Specialist With The Right Expertise
Ultimately, when you are considering borrowing five or even six figures in debt in order to purchase your new cozy home in Canada, you need the assistance of a high quality mortgage broker that can completely service your needs and ensure that you are getting the fairest deal that the real estate lending market offers. A mortgage broker can assist you in navigating the confusing landscape of both open and closed mortgages, with either fixed or variable interest rates. What’s more, mortgage brokers work for free for the borrower, as they earn money from lending institutions. Therefore, you don’t have to worry about paying your mortgage broker, and because of their close relationship with lenders, you can trust that you are getting the best rates possible for your new home mortgage.
Steve Crews is one of Calgary’s finest mortgage brokers. Mr. Crews has worked with two of the largest banks in Canada for more than 15 years, and he brings much needed experience, expertise, community support, and trusted counsel to your mortgage search. If you live in or near Calgary, and need help finding the right mortgage, then contact Steve Crews at (403) 870-2669.