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Guidance For First Time Home Buyers

Guidance For First Time Home Buyers

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If you’re considering purchasing your first home, you probably have a lot of questions about the mortgage process and may even be confused about some aspects of it. To help you make informed decisions as you head towards one of the biggest financial commitments of your life, here are a few guidelines and pointers:

What are some of the words and phrases you might hear?

The term – this refers to the amount of time that your mortgage rate is secured for; usually 5 years. In general, the shorter the term, the lower the rate, and when the term ends you are obliged to renew a term at the new market rate.

The rate– this can be either fixed, or variable, with the latter often being lower, but riskier. Variable rates can go up and down according to the rate set by the Bank of Canada and can lead to monthly payments that go up each month. A fixed rate, on the other hand, becomes locked in for the full term of the mortgage.

Down payment – For a home costing less than $500,000, the minimum down payment is 5%, with 10% on what’s left. If you make a down payment that totals less than 20%, then you’ll need to purchase CMHC insurance. If you make a down payment of more than 20%, then you don’t need that insurance and rates are quoted based upon your specific application.

Payment frequency – How often you make regular payments towards the property you’ve just bought, and how much those payments are, depend upon your payment frequency. There are 6 mortgage options when it comes to making payments: monthly, semi-monthly, bi-weekly, accelerated bi-weekly and accelerated weekly. A mortgage that you want to pay off as quickly as possible, would be best suited to an accelerated option.

What else might you need to know?

Taking into consideration your gross income – which is the amount of money that you earn before taxes or other deductions are taken out – most lenders will require that your housing costs (property taxes, mortgage payments etc) total less than 39% of that. Any other monthly debts that you might pay (which includes your new mortgage), must also total less than 44% of your gross income.

Unfortunately, the price that you’ve paid for your first home, is not inclusive of the cost of such things as home inspections, expenses related to moving, utility connections, land transfer taxes and lawyer fees. Most lenders will like you to have at least 1.5% of the purchase price in extra savings, to ensure that you can cover these costs.

Can a mortgage broker help you get the best rates?

Certainly. The advantage of working with a mortgage broker is that they can do all the legwork for you, including searching among lenders for the best rates, and then helping you to fully understand what you’re signing up for. Your broker assesses your current financial circumstances and bases their search upon this information, meaning that you’ll never sign up for anything that you can’t afford.

For more detailed information about the property buying process and all the latest mortgage information, contact your local, trusted mortgage broker today.

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30 dJun, 2020

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