Debunking These 3 Common Mortgage Myths
posted in Mortgage News
Mortgages need not be complex and intimidating, especially if you work with a local mortgage broker, but it is important to have a basic understanding of how they work, and perhaps more importantly, how they don’t work.
Misunderstanding your mortgage options or making an error of judgement when choosing a lender, could end up costing you dearly, as can listening to some of the myths that abound when it comes to mortgages and how they work. Below, we debunk 3 of the most commonly believed mortgage myths to help you get to grips with your mortgage options:
- 1. Only if you’re a first-time buyer, can you make a 5% down payment
Once upon a time, this was the case, and only those buying a home for the first time, were eligible to make a 5% down payment on a property; all other buyers were required to put down at least 10%. Nowadays, however, a down payment of 5% is available to anyone seeking to buy a primary or second residence in Canada.
It’s important to note that with a down payment of less than 20%, you’ll be required to purchase mortgage default insurance, and this is then added to the balance of the mortgage. This additional charge aside, there’s no reason why you can’t make a down payment of 5% when you purchase a home, in fact, it can enable you to use the proceeds from the of your current home, to pay down debt and begin afresh with a new mortgage on your next home.
- 2. If you’re self-employed, you won’t qualify for a mortgage
This is partially true: if you’ve been self-employed for less than two years and don’t claim enough income on your personal taxes, you won’t qualify for a mortgage. However, once you can show that you’ve been legitimately self-employed and claiming income on your taxes, you’ll be eligible for a mortgage and treated no differently by lenders as someone on a salary at the same income amount.
If you’re self-employed and file your taxes and claim the income, you shouldn’t encounter any difficulties applying for a mortgage. If in doubt about your circumstances or status, talk to a qualified mortgage broker in your area.
- 3. Avoid mortgage insurance by waiting until you have a 20% down payment
This may be a viable option for some homebuyers, but in a lot of cases, if they’re not paying a mortgage, they’re paying a figure out in rent each month, and this kind of expense is lost forever. Purchasing a home with a smaller down payment (less than 20%) and paying the mortgage default insurance premium, gives you the chance to start paying toward equity in the home, and depending upon the condition of the real estate market, also allows equity to appreciate in the home.
Waiting until you’ve got enough for a 20% down payment could see you miss out on an opportunity to become a homeowner with a higher net worth than those who don’t own their own home.
When it comes to something as significant as a mortgage, it’s essential that you get the facts, not the myths, and one way of ensuring that you do, is to work with an experienced mortgage broker in your locality.