Mortgages: Do Your Homework
Planning For The Future Mortgages are not one-size-fits-all. Choose one that is right for you.
For most people, a mortgage represents the largest financial decision they will make in their lifetime. Obtaining a mortgage can be a stressful and daunting process. There is terminology to master, products to review and decisions to make.
"For most people, a mortgage represents the largest financial decision they will make in their lifetime."
Make the informed choice
Fortunately, there is a lot of information available to help borrowers make an informed choice. The Internet and social media offer advice and tools to assist homebuyers. Borrowers should always do some initial research before they speak to a mortgage professional, such as a mortgage broker. Borrowers need to be aware of their own personal situation and determine where they may be in a year or in five years, as this will affect the mortgage product they require.
If a borrower wants certainty, as many first-time homebuyers do, they will likely select a five-year fixed rate mortgage — the most common mortgage product in Canada. If they are more seasoned, or are renewing a mortgage that is close to being paid off, they may decide on a variable mortgage, linked to the Bank of Canada rate and that has been lower than the five-year fixed product.
"In short, make sure you do your homework. Do extensive research and ask lots of questions to ensure you make the right mortgage decision."
The key variables
When qualifying for a mortgage, there are three key variables that determine what type of mortgage you qualify for and for what amount.
First is your credit score, which is determined by your past record of making payments. The higher your credit score, the better. Make sure you pay down or pay off your monthly debts, including credit cards or other loans. Second is income. This is an extremely important factor when qualifying for a mortgage and steady or rising income is an advantage. Lastly, a lender will take into account the property being purchased — where it is located and what condition it is in. They will also require a property appraisal.
If you are a borrower who anticipates a promotion, or for individuals who might be receiving an inheritance, understanding the ability to pay down your mortgage faster or make lump sum payments towards the mortgage may be important.
Similarly, for those who decide on a variable mortgage, you should be aware of the penalties, if any, to lock into a fixed rate mortgage if interest rates begin to rise. Borrowers should always ask a lot of questions of their mortgage professional to ensure they receive the product best suited to them.
"Borrowers should always ask a lot of questions of their mortgage professional to ensure they receive the product best suited to them."
For first-time homebuyers, who made up the majority of new purchasers in 2013, there are government programs available to assist them with their down payment — often the most difficult aspect of purchasing a home. The federal Homebuyers’ Program allows first-time buyers to access up to $25,000 per person from their RRSP without a tax penalty. Similarly, the federal government has a $750 tax credit for first-time buyers to assist in covering closing costs.
Provincial and municipal governments also have programs that assist the first-time buyer. In Ontario, there is a refund of up to $2,000 on the Land Transfer Tax. The City of Toronto has a similar program for its Land Transfer Tax.
In short, make sure you do your homework. Do extensive research and ask lots of questions to ensure you make the right mortgage decision.