For first time buyers, a mortgage is usually the largest amount they have ever borrowed to date. Easy to be confused by all these zeros! Better then be well prepared. Here are 10 questions that necessary to Qualify for mortgage, lenders and financial planners often have to clear out for the real estate market’s novices.
How much can I borrow?
Nathalian, a mortgage finance specialist with broker Multi-Prets, indicates that future borrowers often arrive well prepared in their office, with a budget detailing the costs of the grocery up to the price of visits to the hairdresser. They have also already verified their borrowing capacity through various tools on the Internet, according to their salaries. They want to know if they are on the right track.
Ms. Duchesne helps them simplify everything by reminding them of the costs they might have forgotten, such as insurance or transfer taxes (the “welcome tax”). “The calculators found on the Internet is mathematical, it does not take into account the lifestyle,” says Colette Blais, mortgage development advisor at Desjardins.
Ms. Duchesne invites her new clients to engage in a simple financial year. It is enough to save the difference between the amount of its monthly rent and that of the payments of the coveted loan for a few months. If the experiment fails, then there is still time to review its priorities.
What is the initial down payment required to acquire a property?
The minimum down payment is 5% of the purchase price of the property. For a house of $ 225,000, you will have to pay $ 11,250. A larger down payment will save interest costs. If the capital contribution is less than 20% of the price of housing, lenders normally require to Qualify for mortgage insurance to protect themselves in case of default. This insurance can be obtained from the Canada Mortgage and Housing Corporation (CMHC). The insurance premium varies according to the percentage of the down payment; the higher it is, the lower the premium will be. The latter can be paid at once or added to the loan amount and included in monthly payments. Over an amortization period of 25 years, it will vary between 0,
What other expenses should I anticipate before buying a property?
Many! You have to take into account the property evaluation fees, the notary fees, the moving expenses (renting a truck, changes of address, telephone connection …), the mortgage insurance premium , other insurance costs, property transfer taxes (the “welcome tax”), taxes from the City … “We often have $ 5,000 to $ 6,000 before the purchase!” says Nathalie Duchesne from Multi-Prets. Perhaps also your new property will be located further from your work; therefore, more cash will be needed for gasoline. And we must think of the installation costs, “Cushions, curtains … It’s not true that we will not change anything!” Says Ms. Duchesne.
How to use my RRSP to buy my first home?
The money to buy your first property can come from your savings, a gift from a family member and even you’re Registered Retirement Savings Plan (RRSP). With the Home Buyers’ Plan (HBP), you can withdraw up to $ 25,000 from your Registered Retirement Savings Plan (RRSP) without paying taxes, says financial advisor Michel Quoibion. If you do not contribute to an RRSP, you can take advantage of your contribution room accumulated by borrowing at a financial institution, to repay it by “RAPant” at least 90 days later. “It allows you to take advantage of the tax return for a down payment for a home,” says Blais.
This money can also be used to liquidate debt that one ideally wants to get rid of before becoming a homeowner, says Duchesne. The total amount withdrawn from the RRSP must be repaid in 15 years in the form of annual installments. But beware: if we take a contribution holiday a year, the amount due will be taxable. “If you are not able to repay every year, then using the HBP is not beneficial. It’s not a decision we take with our eyes closed, “warned Mr. Quoibion.
What amortization period and Qualify for mortgage term to choose?
In Canada, the maximum amortization period for CMHC’s new mortgage-backed mortgages was increased from March 30 to March 30 from March 30 to March 30. Twenty-five years is the standard term in the banking sector. A longer amortization obviously means lower payments. But choosing a shorter period often saves thousands of dollars in interest. The term is the period during which the mortgage agreement remains in effect. It is often five years old. The mortgage must then be renewed or renegotiated. In general, for the same amortization period, the shorter the term, the lower the interest rates and payments.
Do I have to choose a fixed or variable interest rate loan?
It all depends on your level of risk tolerance, because of fluctuating interest rates and your ability to pay. With a fixed rate mortgage, the amount of payments does not move. The interest rate is determined at the time of the Home loan requirements application and established for the full term. A floating rate means that it varies according to the evolution of market rates, just like the amounts of payments. Often, interest rates on floating rate mortgages are lower than fixed rate mortgages when the contract is signed; these first may seem more interesting in the short term.
But the evolution of rates is difficult to predict. According to a Harris / Decima poll conducted at the end of April on behalf of CIBC, only 27% of Canadians aged 25 to 34 – who are more likely to be new buyers – would choose a variable rate mortgage.
Institutions also offer diversified products: fragmented loans so that the parties are repayable at different rates and terms. For the first buyers, it must remain simple, raises Ms. Duchesne, because “there is a lot of insecurity to the purchase”. If the advisor notices an interest in monitoring interest rates among future owners, she will propose a small percentage of the variable rate loan, to introduce them to this possibility.
How often should payments be made?
Current payment options vary from one financial institution to another. Payments can be made monthly, twice a month, every two weeks or weekly. It is also possible to opt for accelerated payment by the week and every two weeks to save on interest charges. Since a year spans 52 weeks, but these options are based on the amount of monthly payments, the mortgage is repaid faster by paying the equivalent of one more monthly payment per year.
Do I have to deal with a mortgage broker or directly with lenders?
The ideal is to consult several, on each side, recommends the Financial Consumer Agency of Canada. Conditions and interest rates for similar products may vary from one financial institution to another. Brokers act as intermediaries between institutions and clients; they can therefore offer a wide range of products and conditions at once, but the offer can always differ.
Do I need other insurance?
Mortgage life insurance and disability insurance are not mandatory, but may be helpful. If one does not think that one can make the mortgage payments alone in the event of the death of one’s spouse, a life insurance would be to consider. Same thing with disability insurance if your spouse or you are suddenly no longer able to work. The lending institution is not the only one to offer life insurance: the first buyer is young, it would be advantageous to do business with an insurance broker, said Ms. Duchesne.
If the loan changes financial institution, the owner with a mortgage life insurance must subscribe a new contract. However, he retains his existing individual life insurance if it was the option he had chosen. “Take insurance apart, it will cost peanuts!” Says the advisor.
- What is the purpose of a mortgage pre-approval?
This process allows you to determine, even before you buy a property, at what interest rate a mortgage lender agrees to give you a certain amount of money. Pre-approval is more and more encouraged at Desjardins, says Colette Blais. “It’s convenient for new borrowers. It validates the credit, to give parameters with which they can be comfortable, before going to see on the market, and not the opposite. “