Are you buying your first house? Or maybe you are buying your next new home? Either way, as a new home buyer you might have some questions about getting a mortgage.
Common Mortgage Questions From a New Home Buyer
What does it all mean?
What is an insured mortgage? ~ Mortgage insurance is required if you are putting less than 20% down and sometimes a lender will require it even with 20% down. Also, mortgage loan insurance protects the lender in case you are not able to make your payments. There are currently 3 insurance providers; Canada Mortgage and Housing Corporation (CMHC), Sagen, Canada Guaranty Mortgage Insurance Company The premium (cost of insurance) is calculated as a percentage and varies based on your down payment. The larger the downpayment, the lower the percentage. The premium is added to your monthly mortgage payment and paid over the term of your mortgage.
What is the difference between a fixed and a variable rate?
- Fixed-rate mortgages are locked in at the interest you’ll pay for the term of the mortgage, so your payments always stay the same each month. These are often best for a new home buyer and those who want the stability of a constant payment amount. The trade-off, however, would be that fixed rates are often higher than variable.
- Variable-rate mortgages are based on the bank’s prime rate and will fluctuate with the changes to the Bank of Canada (BOC) rate. If the BOC rate goes up, so does your payment. But if the rate goes down, so does your payment. Sometimes a variable rate can save you a bunch of money in interest, but as a result, you need to be prepared for monthly payment changes. Not sure which to choose, ask us to run the numbers.
How long does a mortgage last? ~ There are 2 parts to this. The Term and the Amortization.
- Term ~ is the length of the mortgage contract with the lender. Often 5 years but can be 1 – 10 years. If you are planning on staying in the home for a certain period it might make sense to structure your term around this time period. For example, planning to move in 3 years, it might be best to have a 3-year term.
- Amortization ~ is the length of time it takes to pay off the mortgage in full. Often 25 years but can be up to 30. The shorter the amortization period, the less interest you will pay.
What options do I have?
How much do I need for a down payment? ~ The minimum downpayment amount depends on 2 things;
- Is the property your primary residence? yes, go to step 2. Is it a second home? yes, go to step 2. Not your primary residence or second home, then the minimum downpayment required 20%
- What is the purchase price? The min downpayment is 5% on the first $500,000 of the purchase price. After that, it is10% on the value between $500,000 and $999,999. And finally, 20% on any value over $1 million.
Should I get a preapproval? ~ Yes! A pre-approval will help you understand how much house you can afford, what you will need to qualify, and if you are ready to buy. Work together with your mortgage broker to ensure you are ready to shop. That way you can focus on getting the right house for you when the time is right.
Can I get a mortgage if I have a poor credit score or unstable income? If you have poor credit or unstable income (Ie commissions/self-employed) it may be difficult to get approved for a mortgage from a traditional lender. However, there are several alternate lenders who specialize in helping in these situations. Give us a call to discuss your options.
Can I pay off my mortgage early? Yes, but, before you do you will want to understand the rules of your mortgage. Many mortgages allow pre-payments without penalty. These prepayment amounts can be upwards of 20% annually. Lenders can supply you with an early payout schedule that will outline the penalties and costs to do so. Let us know if you would like the flexibility to pay down your mortgage faster, we will ensure we get the best product to suit your needs.
- Complete our online application and client consent.
- We will review the application, pull your credit bureau and get to work!
- You will supply your supporting documents. We have a great tool that allows you to upload pictures right from your phone! Plus it’s secure! We’ll supply the link when the time comes.
- After a review of the documents, we provide the recommended max purchase price based on downpayment available and income.
- Start shopping!! ~ for details on the real estate buying process click here
- You have negotiated an offer. Upload the offer to purchase and MLS listing into the link previously supplied. or if you are using us as your agent we already have them!!
- We will send it off to the lender for approval, the usual turnaround time is 24 – 48 hrs.
- The lender provides a commitment letter ~ which will outline the mortgage product, terms, rate, pre-payment privileges, lender commitments, and client expectations.
- Review and sign the commitment letter ~ we will get together in person or virtually to discuss the commitment and have you sign.
- The new mortgage is instructed to your real estate lawyer.
- You sign with the lawyer
We hope this helps fill in the blanks. We are always here to help answer any questions you may have. Trust me, there is no such thing as a silly question when it comes to your mortgage. We want you to feel informed and comfortable throughout the process. As a new home buyer, you will likely have lots of questions. Don’t be shy!
Mortgage Broker No 315872